In the recent “Choosing a Bank” series (shown at the links below), I deliberately excluded the idea of choosing between a privately owned bank and credit unions. Why is this you might ask? This is due to the fact while you almost certainly qualify for some type of credit union, specific credit unions are not accessible to the general population, and therefore, comparisons are more difficult on a media such as a public website than comparing an INGDirect.com account with a Bank of America account.
My Money Blog – Choosing a Bank – Part 1 – Local Banks vs. National Banks
My Money Blog – Choosing a Bank – Part 2 – Savings Options
My Money Blog – Choosing a Bank – Part 3 – Checking Accounts vs. Savings Accounts
For the uninitiated, a credit union is a not-for-profit cooperative that is owned by the account holders/members. Generally, it is managed by a volunteer committee. Because credit unions are non-profits, they do not have to pay state or federal taxes. This is a major advantage!
To qualify for membership (for an account), you must share a common bond with the organization and body of members. For example, many companies, universities, and even cities/counties have their own credit unions.
In short, it is very hard for traditional banks to compete with credit unions, and it is clear that credit unions offer superior products. It has been postulated that credit unions save customers and estimated $8 billion per year in savings on fees compared to traditional banks. MSNMoney.com provides a great comparison of the advantages of credit unions to traditional banks at the link below.
Advantages of Credit Unions
- Higher interest rates on savings instruments
- Lower interest rates on consumer and mortgage loans
- Deposits are insured
- Harder to access your money due to decreased number of branches and ATMs around the country. Although, this is decreasing all of the time due to ATM networks such as the AllPoint network – see the post My Money Blog – Are ATM Fees a Thing of the Past.
- You will most likely want to change to a different bank/credit union if you leave the school, company, or area in which your credit union is located. In doing some research, I was amazed that most credit unions I came across offer clauses along the lines of “once a member, always a member.” Therefore, you will most likely not be kicked out of the credit union if you stop working for the company. However, you will not want to have your account at a Pfizer credit union if you live in Winslow, AR where there are no other Pfizer employees within 30 miles and no Pfizer credit union branches.
In my personal situation, since I seem to move around a lot, I have chosen to have my checking account with Bank of America due to ease of access when I move. However, if I were to buy a house and want a mortgage loan, I would definitely consider the options at my local credit union!
It is clear that credit unions offer superior financial products when compared with traditional banks. As such, they should always be considered as one of your financial options. Take a look at the link below and see which credit unions are located near you that you qualify for!
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