9 Good Reasons to Choose a Credit Union Instead of a Bank
I am huge believer in credit unions.
When I first arrived to the U.S., I only had my savings and my dreams of completing a MBA degree. As an immigrant I didn’t have a credit history or a U.S. bank account. This meant that many big names in banking were hesitant to give me a chance. This made qualifying for a credit card or becoming eligible for a car loan very challenging. Thanks to a local credit union, I was not only able to achieve these milestones, but also build my credit history and become financially independent. (See also: How to Switch Banks)
Here are the 10 good reasons to choose a credit union instead of a bank.
1. Credit Unions Have Owners
While banks have clients, credit unions have part owners or members. When you open an account, your account is actually a share and provides you voting rights. Instead of a board of directors, decisions are made by vote from shareholders. Each member has a voice in how operations are run, no matter how small her share may be.
On top of this, credit unions are not run for profit. Instead these institutions have the ultimate goal of providing their members better rates on loans and financial products. When a credit union makes a profit, it is used to provide better opportunities to the community that it serves.
2. Accounts Have Fewer and Lower Fees
When I was researching checking and savings accounts at banks, I was shocked at the fees they charged. Turns out that the average checking account from a bank has 30 different fees, such as maintenance and excess withdrawal fees. Some banks have up to 50 unique fees for checking accounts!
Unlike big banks, credit unions aim to minimize account fees. For example, credit unions are well known for not charging monthly maintenance fees, which are about $12 to $14 at big name banks.
3. Clerks Talk With You
This is a major advantage of working with a credit union. Credit unions have a much smaller client base, and they work very hard to keep them happy.
For example, on my first year I miscalculated an incoming paycheck and wrote a check that was $10 over my bank balance. Instead of charging me an overdraft fee, a rep from my credit union gave me a call and informed me of the situation. He asked me if I could make a deposit to cover the $10 difference by 11 a.m. Also, my credit union gave me a one-time overdraft fee waiver because they understood that it was a rookie mistake.
Every time that I need help I know that I can count on talking over the phone with an actual person that works at my credit union — no redirects to distant call centers. Some clerks even know me by name after so many years. This gives me the confidence of handling matters over the phone and knowing that any issue can be resolved.
4. Lower Financing Costs and Higher Payouts
Data from the National Credit Union Administration (NCUA) consistently shows that credit unions outperform banks. For example, in March 2014:
Credit unions had a national average rate of 4.75% for home equity loans, while banks had a 5.33% average rate
A $2,500 money market investment would have paid an average 0.16% at credit unions and an average 0.12% at banks
A $10,000 5-year CD yielded a national average 1.32% at credit unions and 1.14% at banks
5. Access to Financing for Low-Income Individuals
Credit unions do not only offer cheaper financing options, but also provide low-income or financially distressed individuals a chance to qualify for financing. Here are some examples:
Virginia State employees, who are paid on a monthly or semi-monthly basis and have held employment for over 12 years, are eligible for loans in $100 increments through the Virginia Credit Union.
Since 2001, the North Carolina State Employee’s Credit Union has helped over 111,800 of its members to borrow $1.5 billion through $500 salary advance loans at a 12% rate payable within a month. The program enjoys a default rate of less than 0.1%.
During the 2009-2010 state employee furlough, the Hawaii State Federal Credit Union provided a special rate for those members affected by the furlough to borrow up to $5,000. The credit union continues to offer this assistance to members affected by federal budget cuts and furloughs.
6. Friendly Credit Card Terms
Credit unions are well-known for providing some of the most attractive credit cards. Some of the features include:
No annual fees.
No introductory rates.
Annual percentage rates start at 7.75%. (The national average for credit union issued credit cards is 11.56%, according to the NCUA.)
State Employee’s Credit Union: 7.75%.
University of Hawaii Federal Credit Union: 8.50%.
The same APR applies to purchases, cash advances, and balance transfers.
Most credit union members enjoy the same APR, regardless of credit score.
No interest periods are often provided during the summer, December holidays, and special occasions.
Cash advances can be deposited directly into your checking account at no extra charge.
My very first credit card was through my credit union and I still keep it until this day. I have not been able to find a credit card that matches the great terms that my credit union offers. (See also: The PenFed Promise Visa Card Offers a Way to Escape Your Big Bank)
7. Car Loans
When it comes to providing car loans, credit unions have the local advantage over large banks.
As of March 2014, a new car 48-month loan stood at a national average of 2.69% at credit unions, and of 4.94% at banks. For used cars 48-month loans, the average rate was 2.87% for credit unions was 5.48% for banks.
They often run car loan pre-approval events, so that you have a pre-approval letter from your credit union before you visit a car dealership. Shop with confidence by being 100% sure about your financing.
Credit unions often partner with local dealerships for giveaways, such as gift cards for gas stations. For example, forms may be available at your credit union branch to take with you the next time you visit participating dealerships. You can receive free gas cards just for window shopping at a car dealership. The dealer fills out the form to confirm your visit and sends it back to the credit union. A couple days later a gas card is mailed to you.
If your credit union has a gas card partnership with a local dealership, it may also provide an even bigger gas card for financing a new car purchase through your credit union.
The more, the merrier: Some car dealerships may run “credit union days.” At these events, you can browse financing offers from other credit unions, and, if you find a better one, inquire if you’re eligible.
8. Private Lines of Credit for College Students
Most credit unions partner with Credit Union Student Choice to offer a private line of credit to supplement college education costs. The main advantages from these private student loans are:
Zero fees: no origination, application, or prepayment fees.
Lower interest rates than comparable private lines of credit.
Flexible repayment plans including school deferment.
Loans start at $1,000.
Almost 2,000 colleges across the U.S are eligible for loans from Credit Union Student Choice. To apply you must be enrolled at least part-time in a four year degree program at a participating public or private college.
9. Christmas Savings Accounts
Several people end up with a financial hangover from the Black Friday and Christmas “deals” because they rack up their store and credit cards. Shopping for gifts on plastic is a dangerous habit. (See also: Best Credit Cards for the Holidays)
While almost no banks run “Christmas Clubs” any more, nearly 72% of credit unions do. Christmas Clubs are special savings accounts that encourage saving for the holidays. The main objective of these accounts is to stash this money away from yourself and make the funds grow until the first days of the holiday season. By saving throughout the year with a Christmas Club, you have a higher chance of actually saving and decreasing your credit card use.
On top of that, most credit unions do something fun when they deliver your Christmas Club check. If you’re having a hard time saving and love anything Christmas-related, then this may be the right savings vehicle for you!