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5 reasons credit unions rock

By Jim Wang · Bankrate.com
Thursday, June 9, 2011
Posted: 1 pm ET

The first "bank" account I ever opened was at a credit union. I was only 15 at the time, co-signing the document with my mother, and I didn't know the difference between a checking account and a savings account. In fact, I was even more perplexed with the credit union terminology of share draft and share accounts. In the many years since, I've come to understand the value of credit unions, why they're so great, and why they use such odd terminology.

Credit unions are structured differently than banks. The biggest difference between a credit union and a commercial bank is in who owns it. Shareholders and investors own a commercial bank, so the bank has a big incentive to generate profits for their owners. Credit unions are owned by the depositor, which means there's less of an incentive to earn money because that money just goes back to the people who save their money with the credit union. Credit unions generally charge lower interest rates on loans and offer higher interest rates on deposits because they are responsible to depositors, not shareholders and investors looking for a good return.

Higher interest rates on deposits, lower interest rates on loans. Credit unions are able to offer higher interest rates because they don't have an incentive to generate large profits. In theory, since depositors own the bank, profits should be paid out to the depositors. They can skip the bookkeeping by simply giving customers better rates.

Credit unions are much smaller. Most credit unions have a handful of branches and have a smaller footprint  than a regional bank. There are a few that have a large presence, but none that rival the size of a national bank like Bank of America. While the smaller size doesn't guarantee more personalized service, it's more likely that a smaller bank with fewer customers will spend more time on each person. You pay for this with a smaller ATM network and fewer services, so it's a trade-off. You have to do a little extra work to avoid ATM fees but it's usually worth it.

Credit unions fail less often than commercial banks. There's almost no comparison between the frequency of failures at banks insured by the Federal Deposit Insurance Corp., or FDIC, and credit unions insured by the National Credit Union Administration, or NCUA. As of the end of May, 44 FDIC insured institutions had failed in 2011 compared to nine NCUA insured institutions. This makes sense because, in general, credit unions take on less risk. Because they are smaller, they make fewer loans. Because there is no strong profit motive, they make less risky loans.

The board of directors is staffed with volunteer customers. Because the credit union is owned by the depositors, the credit union is also governed and managed by customers. A credit union's board of directors is made up of its customers and they all serve on a volunteer basis. If you are so inclined, you can run for a seat on the board. Try doing that at a commercial bank.

As for the weird names for accounts, they reflect ownership. It's called a share draft account instead of a checking account because you can draft checks out of an account. It's called a share account to reflect the idea that you are part owner of the credit union. While I've since closed my first credit union account because I moved away from home, it still holds a special place in my heart.

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8 Comments
Candi
July 04, 2011 at 8:54 pm

I've been with my credit unions for at least 7 years now (mind you, I wrote "unions" - plural).

I live in SE Penna. and I have yet to see where either of my CUs offer great rates for savings (neither do - one offers 0.25% if you have a $25000 balance!), but they charge up the wazoo for loans (10% for auto loans, and one of the CUs doesn't offer mortgages at all so, I have no knowledge of those rates).

The only thing I like about them is that the customer service is truly impeccable! No matter which branch I go to, the teller always calls me by name and my transactions are performed correctly EVERY SINGLE TIME! As a matter of fact, ALL of my necessary transactions have been correct. I've had no bounced checks, no overdrafts, nothing negative.

Other than the interest rates for loans and "share accounts", yes, Credit Unions ROCK!

Zoe
July 04, 2011 at 10:17 am

@Doug: My BANK Knows my name when I walk in the door too and can prompt their stations as well.
@ Warren I know what you mean. The CU was great til things starting going bad. I tried to get help also and they gave me bad advice. i.e. I learned the hard way instead of them telling me what I needed to know I was given advice on where to go which made things worse. Ultimately they(CU) lost their money from me. If only I'd known about CCC before this. Certainly my fault, but no one tells/teaches you these things and my economy was not favoring me. i.e. hoping for better situation and such. And so it goes.
Credit Unions have their advantages as the articles states. And not all banks are bad either.

George
July 02, 2011 at 5:44 pm

Would your credit union or bank take your life savings to pay off your mortgage without your permission because you got laid off?

Doug
June 23, 2011 at 11:47 am

And, many credit unions know their customers BY NAME.

I've invested 32 years with *my* credit union. I've seen them go through A LOT of changes, but the one constant is that they always call me by my name whenever I walk into the lobby. As soon as I get to the tellers' window, they already have my account up on the screen, and ask me "what are we doing today?"

Does a big bank do that? Not on your life.

Steve
June 17, 2011 at 3:27 pm

Kind of like Warren we were with the same credit union for 35 years. After two years of trying to work with our mortgage company on a second property we own, we were forced to file a chapter 7. The only thing I wanted to keep was a low interest Visa with the credit union that we keep for emergencies. We owed 0 dollars on it. The credit union was not involved in the BK at all we owed them no money on anything. 20 days ago they cancelled our Visa. Thanks, Partner Credit Union. After thirty five years we will be ending our relationship with you when the BK is final.

Heather
June 16, 2011 at 3:07 pm

@Warren:

Excessive debt IS a black mark on your credit. Your debt-to-credit ratio and income are both vital factors when determining a customer's creditworthiness. It has nothing to do with past business relationships nor how much you have in the bank.

Your credit union looked, and saw that you were a credit risk. They don't stay solvent loaning money to people who don't manage their money well.

Warren
June 12, 2011 at 8:39 am

I too entered a Credit union at a young age (18) and have been a
long time member(25 PLus years)..My 1st car loan was with them and since I have done countless loans..(Cars,2nd mortgages, lines of credit,personal loans....etc....and have NEVER missed a payment or been late..I have always had direct deposit on top of that so they see all my money instantly...Well a year back we were invovled in a business partner ship and it went bad...really bad and we got STUCK with alot of debt..We decided to avoid bankrupcy and ride it out...Because of this my wife and I are forced to work part-time jobs to keep afloat...My son recently was accepted at the Univ of Texas and us being for the Northeast decided to drive him down so we could get him his car..We went to the Credit Union and were denied a meazly $3,000 loan to get him to Texas..Now mind you were have no black marks on credit ..with still makes payments on time..granted debt is excessive but we are working hard on that..SO Desperately we started seeking other means and went to our local bank which we have a small account with...we were approved in a hour..So much for Friendly helpful credit union..in 3 years we are out of their

Ron
June 10, 2011 at 10:17 am

Your "CUs fail less often than banks" comparison is only meaningful if the number of institutions is similar. Maybe it is, but your story would be strengthened with that information.

I think CUs are great; we still use the account I opened as a 16-year old some 35 years ago. Even when I moved away, they still were happy to provide loan, certificate, and other services at much better rates (and with MUCH better service) than banks in the area. And when we moved back to the area we were happy to move everything else back there.