credit unions

Credit unions help young savers start

The growing cost of gas, groceries and other expenses has many Americans -- including young adults -- looking for ways to save extra money.

However, some people overlook one source of savings: joining a credit union.

Credit unions typically trump banks by offering lower interest rates on credit cards, car loans and mortgages. They also pay out higher interest rates on savings and may have reduced or limited fees associated with checking accounts, ATMs and online bank services.

Credit unions can afford these better rates because they are run as cooperatives in which each member is an owner. Unlike banks, credit unions operate as nonprofits and return earnings back to members.

"The biggest draw is that they are member-owned and their nonprofit status allows them to be driven by service, while the other financial services sector focuses on stockholder profits," says Rashmi Rangan, executive director of the Delaware Community Reinvestment Action Council, a nonprofit advocating for equal access to credit and capital for underserved populations in Delaware.

Many young people traditionally have difficulty obtaining credit because their incomes are low and they have little or no credit history, according to Mike Schenk, vice president of economics and statistics at the national trade agency Credit Union National Association, or CUNA.

The ongoing credit crunch has caused banks to further tighten their lending standers, making it even more difficult for young people to build a credit history, Schenk says.

"Credit unions, in contrast, are chartered to serve their members’ needs and are more likely to not have changed their underwriting standards significantly in the marketplace," he says. "Therefore, they are making loans that other lenders do not, with really low rates and really low fees."

Credit union advantages

Nearly 90 million people in the U.S. belong to a credit union, according to CUNA. They save $10.9 billion a year by using a credit union instead of a bank, CUNA figures show. This works out to be about $126 per person, or $239 per household.

Individual credit unions offer different products and services, but most share some basic services to help young adults meet financial needs.

According to CUNA's 2007 Credit Union Profile Report, 99 percent of larger credit unions (asset size of $100 million or greater) offer checking, certificates of deposit, IRAs, first mortgages, auto loans and unsecured loans.

Credit unions also offer their services at fees that can be significantly lower than those of commercial banks. Every year, CUNA uses a third-party vendor to survey and report average fees between credit unions and 500 commercial banks, Schenk says.

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"Our most recent survey proves credit union fees in general are much lower," he says.

A CUNA survey found that people who use financial institutions are especially concerned about a handful of fees: checking account nonsufficient funds fees, credit card late-payment fees and mortgage origination fees.

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