Credit unions warrant a second look

Today's financial maelstrom has consumers fleeing to safe havens to park their hard-earned cash. One place that's largely been off the radar for most folks is the neighborhood credit union.

These relatively small financial institutions have long been perceived as antiquated and unable to provide the same services as banks, but just the opposite is true.

"Today's credit unions provide the full cornucopia of services that banks provide," says Fred Becker, president of the National Association of Federal Credit Unions. "They are fully open for business."

And because credit unions largely avoided offering risky mortgages, they are one of the few success stories to emerge from the subprime mortgage mess.

Deposits insured to $250,000 

The federal government recently bolstered the security of credit union deposits with the passage of the Emergency Economic Stabilization Act of 2008, the same legislation that increased FDIC deposit insurance limits.

Deposits in share accounts are insured up to $250,000 through the National Credit Union Share Insurance Fund, or NCUSIF, until Dec. 31, 2009.

The coverage will apply to all federal credit unions and the vast majority of state- chartered credit unions. Previously, accounts were insured up to $100,000.

Credit unions hold just under 6.2 percent of consumer deposits compared to banks, which possess the lion's share. But the services and low rates they offer may warrant a second look.

How credit unions differ from banks 

The National Credit Union Administration, or NCUA, a government agency, regulates federally chartered credit unions. State-chartered credit unions are regulated by their state financial regulators. In addition:

• Credit unions are not-for-profit financial cooperatives where each member is a shareholder. The terms "account holder" and "customer" are not used.
• Credit union members open "share accounts" which can be checking or savings accounts. Depending on how profitable the credit union is at the end of the year, surplus earnings are returned to members in the form of dividends, lower loan rates or reduced-cost services.
• Credit unions derive their membership from a specific "field of membership." A field of membership may consist of people who live in a particular community, work at the same company or belong to a specific trade group. No one outside the field of membership can join.
• Federally chartered credit unions cap interest rates on loans and credit cards at 18 percent compared to banks, which can charge much higher amounts on delinquent or defaulted accounts. 

Better service, lower rates 

Credit unions have historically emphasized personal service and lower rates as a major component of their mission. Recently the industry has experienced an uptick in the number of people applying for membership.