The Pros & Cons of Credit Unions
Have you ever read a Yahoo! article about personal finance and looked at the comments? There’s usually one crazy person who swears off everything about banking or investing and claims the world is ending so they’ve strapped their life savings to the floorboards in their kitchen.
Banks that are FDIC insured provide security up to $250,000 so it’s a good idea to hold your money in a bank, but people are often surprised to learn there are alternatives to using banks. They’re called credit unions.
Credit unions get a bad rap because the name has two words with negative connotations – credit and union. In reality, credit unions are one of the most pro-consumer entities in the community today. A credit union is owned by its member and exists to supply reasonable credit, banking services, and customer service to its members.
Let’s look at the pros and cons of joining a credit union for your banking needs.
Have you ever had a bank try to sell you a mortgage when you just wanted to deposit your paycheck? It’s slimy. Big banks are in it for the bottom line and will go to any lengths to get you to give them more money.
Credit unions, on the other hand, are owned by its own members and provide adequate and moral banking to its members. They take a cut to make the bank grow, but any other surplus is given back to the customer in the form of better rates or service. The tricks and games aren’t a part of a credit unions agenda – they have the needs of the consumer in mind at all times.
– Based in your community
The world’s getting smaller, but credit unions are one of the few organizations out there that still hold ties to your local community. Many credit unions are restricted to a certain geographical location which means you can become a part of a group of like-minded people – your neighbors. This usually leads to…
– Superior customer service
This is the #1 reason a lot of people join credit unions. They exist because you – the customer – exists and will do their best to please you.
The members, employees, and board members are going to be people you know and live near so they’ll be a level of togetherness and trust when you join a credit union. No one will try to sell you a loan you can’t pay, instead, you’ll feel safe with your bank because the way they approach customer service and the organization/customer relationship is totally different than that of a big bank like Chase or Bank of America.
– Same bank services as your big bank
Auto loans, mortgages, savings accounts, retirement accounts, and checking accounts are all available at credit unions. They may have a slightly different name for an account, but credit unions offer almost all of the accounts your normal bank does.
A vast majority of them are also insured – 95% of state chartered credit unions are insured and any federal credit union is insured up to $100,000 per account and $250,000 for retirement accounts. Side note: always make sure you’re bank or credit union is insured before doing business with them.
Last, credit unions provide equal or better savings rates and better loan rates because they don’t have the bottom line to constantly worry about like big banks. If you’re a bare bones banker – like 97% of the world is – then credit unions are more than sufficient for your needs.
– Limited to certain areas and communities
Credit unions are either centered around a community or certain group – like veterans. Therefore, if a branch isn’t located near you, you’re out of luck. Shopping around is also difficult or impossible since you must belong to the certain community to join. This means if you’re local credit union is subpar, you’re out of choices.
– Web interfaces are lacking
Online banks are so popular because they understand that today’s banking customer uses the internet to bank and rarely visits a branch. Because of this, they center their business around their online presentation. Easy transfers, customization, and interest tracking are just some of the options my online banks offers.
I don’t belong to a credit union, but the ones I looked up had pretty dismal web interfaces. They often don’t invest a lot of money in to web design and may not even provide online banking. This may not be something that worries you, but if you do a majority of your banking online you may tire of the lack of options.
– Lack of funds
Because credit unions are small they avoided a lot of the bad loans that brought down the financial industry 2 years ago. In a time where a record amount of banks were closing, credit unions were holding their own. Big banks have an advantage though – large amount of funds and the abilitiy to get credit. According to Credit Union National Association in 2009, credit unions held $885 billion in assets, compared to $13.4 trillion for big banks.
Credit unions are not-for-profit and tax-exempt which means they must turn a surplus in order to prosper and survive. Many do becuase they’re managed so well, but having limited funds to pull from can be troublesome. If your credit union is insured, this doesn’t matter much, but it could cause a minor headache if the credit union goes under.
– Expenses still high
They remain small and conservative, but they still spend money on workers and the building. Therefore, their overhead will probably be considerably more than an online bank that exists solely online. Online banks return this money in the form of higher interest rates on savings and checking accounts. This isn’t the strong point of credit unions, so a lot of people are more than willing to give up extra interest in return for superior customer service and trust in their banking situation.
If you’re interested in joining a credit union or just researching the topic more, search Google for “credit union” and it’ll return the credit unions in your area.
What do you think of credit unions? Would you join one? Are you currently a member?