Why Choose Credit Unions
Credit unions have their roots in 19th century Europe, beginning in England and developing the traits that we recognize today in Germany. The credit-union concept began as a cooperative effort to aid farmers, bakers and other working-class laborers pool their resources in a nonprofit institution similar to banks. The rise of credit unions in the U.S. began during the 1920s in response to banks' refusal to extend credit to consumers. The Federal Credit Union Act was signed by President Roosevelt in 1934, and the member-owned concept of credit unions took hold.
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Lower Credit Card Rates
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Credit card issuing is a relatively new service provided by credit unions, and many smaller credit unions still don't offer them. But the credit unions that do offer credit cards usually do so at interest rates much lower than banks. Diane Mapes, in an article for MSN Money, wrote that she ditched her bank's credit card -- with a 19.99 percent interest rate -- in favor of a local credit union card at 6.99 percent. And there was no balance-transfer fee.
Higher Deposit Interest Rates
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Most credit unions offer higher interest rates than banks on savings and checking accounts. Credit unions also are much easier to use when it comes to openings accounts. You normally can open an account with $5; some credit unions require only $1. There's also rarely a minimum balance required, unlike banks, and free checking usually is offered with no minimum balance. Banks almost always require a high minimum balance before offering free checking, and penalties will be levied if your balance falls below a pre-determined threshold.
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Lower Loan Interest Rates
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A comparison of rates by Atlanta-based Associated Credit Union, ACU, in March 2011 revealed lower loan interest rates and higher checking and money market interest rates across the board when compared to area banks. On a 48-month auto loan, ACU charged a 2.75 percent APR versus 2.99 percent for Bank of America, 6.44 percent for Fidelity and 11.12 percent for Wells Fargo. ACU charged 4.00 percent for home equity lines of credit, whereas Bank of America charged 6.24 percent and Wells Fargo charged 6.74 percent. Branch Banking & Trust was slightly lower at 3.75 percent. Checking account interest rates and money market rates also were higher than any bank surveyed.
Better Customer Service
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Most credit unions are much smaller than banks. They are neighborhood institutions that grew out of community needs. Even though you have to be a member, you'd be hard pressed to not be able to find at least one credit union in your area that would accept you as member. As a member, you're part owner. You get voting rights and elect the board of directors. As such, credit unions tend to be more customer friendly than banks. The only shareholders that credit unions answer to are you and other members. Diane Mapes, from MSN Money, quoted a frustrated bank customer who had been told by the bank that she wasn't their kind of customer. "The message I received from the bank was that they weren't interested in keeping my business because I didn't keep a rolling balance," Mapes quotes the woman as saying. "I told them, 'Look at my history, look at all the years and years I've been with you,' and they said, 'Yeah, you typically pay off your balance every month.' I said, 'Yes, I do, isn't that awesome?' and they said, 'No, not really. We make money off of people who don't pay off their bill.'"
Drawbacks
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There are disadvantages with credit unions, the biggest probably being that they have fewer branch offices and ATM locations, although, having to pay a withdrawal fee for using a non-member machine is nothing new to bank customers, either. And although the National Credit Union Administration insures approximately 97 percent of all credit unions, some aren't covered. Shop for one that is. You also may have limited services at a credit union, but many credit unions now offer financial products to rival banks, including home mortgages.
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