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Ever since the financial crisis of 2008 there has been no love lost between the big banks and consumers. Although consumers’ antipathy toward banks probably started well before then, their trust in banks fell to an all-time low following the crisis. Among the biggest beneficiaries of the fallout have been the credit unions, which are now 7,000 strong with more than 100 million customers.
Banks still have the size and technological edge over credit unions, which are important for the convenience factor; but credit unions exist solely for their members, which gives them a huge edge in the trust factor. However, while there are advantages in using a credit union instead of traditional bank, there are also several disadvantages.
Advantages of a Credit Union
Customers Are the Boss
The major difference between a best credit unions and most banks is the ownership structure. Banks are owned by their shareholders, while credit unions are owned by their members. Banks exist to please their shareholders, which is usually done by increasing profits and the dividends payable to the shareholders. Credit unions are not-for-profit institutions that exist to please their memberships, which is typically done by keeping their banking fees low and providing more personalized service.
Credit Unions Offer Better Rates
Because of their not-for-profit status, credit unions are able to pass on their profits to their customers in the form of lower loan and credit card rates and higher savings rates. Credit unions offer the same loan and savings products as banks, but their rates tend to be much more competitive. Credit unions are especially competitive in auto financing and their money market rates are often more than double what is available from banks.
Credit Unions Provide Better Customer Service
Because credit unions are owned by their members their focus is on how to make the banking experience better. That includes providing more affordable services in a personalized way. Credit unions are much more attuned to the personal needs of their customers, often working with them to find credit solutions typically not available in banks. They also spend more time educating their customers on how to better manage their finances.
Free Actually Means Free
Most credit unions do not charge a fee for basic checking or savings accounts and there are no strings attached. While some banks may offer “free” accounts, they usually come with minimum balance requirements that may make it difficult to avoid fees. Many credit unions don’t have minimum balance requirements and, for those that do, the requirement is very low, like $5. Also, with many banks, you have to jump through hoops to earn the higher interest rates on savings or money market accounts, such as having to make a certain number of transactions. With credit unions, there are no such requirements.
The Fees Are Very Low
Credit unions do charge fees for such things as check overdrafts and other transactions, but they are lower than what a bank charges. The average check overdraft fee charged by credit unions is about $24, while the average for banks is $35. Considering all possible transaction fees, the average fees charged by a bank each year is $77 compared to just $22 for credit unions. According to the 2015 CUNA Membership Benefits Report, total savings in fees realized by credit union customers totaled nearly $8.5 billion over a 12-month period.
Credit Unions Have Expansive ATM Networks
One of the big advantages of banking with a big bank is the access to ATMs across town and when traveling out of town. Although credit unions tend to be more local, many credit unions have joined together to create a CO-OP ATM network and shared branch alliance. The network offers nearly 30,000 surcharge-free ATMs across the country and makes more than 5,000 branches available for in-person transactions. For credit unions that are not a part of the network, or whenever a customer of a CO-OP credit union can’t find an ATM in the network, most credit unions offer to reimburse customers for ATM fees up to a certain limit.
Disadvantages of Credit Union
Credit Unions Have Fewer Options
The same streamlined business model that works to keep fees low tends to limit the number of options available to customers. Whereas a large bank may offer five different types of checking and savings accounts, personal loans, and 10 different credit cards, a typical credit union may only offer a couple of different options in each product category. This may be a disadvantage for people who like more choices or want the freedom to select a product most suitable for their needs. If you are looking for student loans, credit unions do have some options available.
Credit Unions Have Less Robust Rewards Programs
Banks still dominate the credit card market largely because of their ability to offer robust rewards programs, with some banks offering a choice of several different options. To keep their fees down across the board, credit unions tend to offer fewer credit card options with little emphasis on rewards. That can be a significant disadvantage for people who rely heavily on rewards programs to save money. However, because credit unions offer fewer options and don’t emphasize rewards, they can offer lower rates on their credit cards.
Credit Unions Are Technologically Challenged
For people who enjoy the convenience of accessing their bank services online, the big banks have a decided advantage. Banks have far more resources to invest in emerging technologies than credit unions. Although most credit unions do offer online access to account information, they are somewhat limited in transaction capabilities. Although the larger credit unions are catching up in online and mobile banking capabilities, tech savvy customers may be a little disappointed.
Credit Unions Are Less Convenient
Although many credit unions do belong to the CO-OP, which makes more branches available to customers, they are still few and far between when compared to bank branch locations. Credit unions also tend to have shorter hours than banks. For people who tend to visit their bank branches periodically, it can be an inconvenience.
Credit Unions Have Eligibility Requirements
Although this is less of a problem than in years past, some credit unions do limit their membership based on certain criteria. Some credit unions cater to specific employee groups, associations or fraternal associations. Other credit unions cater strictly to members of a certain community or region. An increasing number of credit unions are relaxing their membership requirements to include a broader cross-section of people.
Advantage Credit Unions or Banks?
The fact that credit union membership has been growing by an average of 2% per year for more than 15 years is a strong indication that traditional banks are losing their hold over consumers. The advantage of low fees, better rates and better service attracted nearly 4 million new members in 2015 alone. However, there may be just enough disadvantages – less convenience, fewer locations, poor online access, and membership eligibility – to keep many consumers from changing. For people who only need basic banking services delivered at a low cost, credit unions are a great choice. Those who prefer more bells and whistles, more options and a more robust online platform, despite higher costs, are probably going to stay where they are.
Author: Jeff Gitlen