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Bank or credit union? How to choose and why to change

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More than 3.7 million people joined a credit union (CU) last year, according to the Credit Union National Association or CUNA. In the US, there are roughly 6,000 CUs serving 106 million members. While the love for credit unions is nothing new (CUs have been around since 1850), consumers today are making the switch for better service and savings.

Financial services can look similar on the surface. However, credit unions operate in a uniquely different way than banks. They take pride in serving and looking after their members’ best interests, not overselling to boost the bottom line. At CUs, people come before profits.

Not-for-profit, member-owned structure:

  • Each member owns one “share” of the CU
  • Earnings returned to the member
  • Volunteer board hires and oversees the CEO
  • Benefits include higher savings rates, lower loan rates, and fewer fees
  • Personal service and financial literacy are a priority
  • CUs are financial cooperatives: community-driven and member-centric 

Democratically controlled

Credit unions are not-for-profit financial cooperatives, and each member owns a share of the CU. Rather than a paid board, CUs are also governed by a member-elected board of directors who provide oversight and co-leadership to a professional management team. Members can run for and vote for this board.

And “not-for-profit” doesn’t signify a lack of earnings or self-sufficiency; it simply means that CUs return earnings to their members. Profits can be returned in the form of higher rates on savings, lower rates on loans, expanded services, and fewer fees.

One member makes a deposit; another needs a loan. From this, emerges a financial cooperative. 

Banks are in business for shareholders

Banks, on the other hand, are a business like any other: run for profit, by people who answer to their investors. All bank activities are expected to show a profit for shareholders. The higher the profits, the happier the shareholders will be.

Unlike the democratic structure of CUs, banks are governed by paid shareholders and voting rights depend on the number of shares owned. Earnings go to outside bond and stockholders in the form of dividends. Source: Depositaccounts.com and Howstuffworks.com.

Paying it forward

The CU business model is different – and its member-centric culture permeates the communities it serves. CUs are visible. They align with community causes important to their members. Staff also embraces this pay-it-forward philosophy and volunteerism. Community friendship is a priority and the credit union “people helping people” motto is alive and well.

Banks have been unable to duplicate the excitement members feel for their credit unions.

Bank burnout

Disenchantment with Wall Street, corporate greed and bank bailouts have been additional factors in declining satisfaction at banks. Banks also have a reputation for less flexibility and personalization in their service. Conversely, consumers realize the benefits of banking at a CU, where the fees are less, rates better, and service levels greater.

The credit union approach to service sets them apart from other financial institutions. Members come first, with service above profits.

Membership misconception

There may be a misconception that credit unions are difficult to join or have limited access. This may have been true decades ago but no longer. Many credit union fields of membership are now open to the community or statewide rather than limited to a single group.

Plain vanilla services are also a thing of the past. Today, most credit unions are full-service, far beyond loans, savings, and checking. The majority offer extensive product lines as well, including mobile banking, mortgages, financial planning, and even investment and business services.

Superior staff

While volunteer boards provide governance for credit unions, it’s the professional staffs who implement policy, serve members and make monetary decisions. And compared to their bank counterparts, staff continually exceed member satisfaction ratings. According to the American Customer Service Index (ACSI), credit unions scored an 85 in 2015, banks a 76.  (Source: ChicagoTribune.com.)

The member-centric structure is indeed at work. The ACSI also reports that CUs outpace banks in member loyalty, expectations, and value perceived. Service can, of course, mean different things to different people. It may mean staying open beyond normal hours to serve someone; taking the extra step to ensure a loan is approved; or something as simple as remembering your name or your kids’ names.

Full-service, with a focus on the member’s financial well-being:

Higher savings rates

Earnings are returned to the member, in part, via higher rates on shares. Comparable to the FDIC, the bank’s insurer, deposits at CUs are federally insured by the National Credit Union Administration (NCUA) up to $250,000 per account with added coverage for IRA deposits.

Lower loan rates

Credit union members also save with lower loan rates while the cooperative structure influences how CUs set their rates. The NCUA reports that as of March 2016, the national average rate for a 48-month new car loan was 4.62 percent at banks, compared to 2.62 percent at CUs.

More flexibility

Flexibility ties in with service, but it does have a bit of a nuance. It's reflected in how credit union employees take ownership in their jobs, their latitude in making decisions for better service, as well as finding out-of-the-box solutions.

Straightforward services

More complicated account requirements also contribute to dissatisfied bank customers. CUs strive to have a no-strings-attached approach and be clear about account requirements; terms are easier to understand and meet.

Fewer fees

Credit unions are also less dependent on fee income to boost profits. Free checking, for example, is core to a CU’s service offerings. According to the 2016 Credit Union Checking Survey from Bankrate.com, 76 percent of CUs offer a free checking account, up from 72 percent the previous year. Meanwhile, free checking has declined at banks five out of the last six years.

Note: Free checking at any financial institution may have certain requirements, such as an account relationship or minimum balance. Terms may vary by credit union or bank.

Are there disadvantages?

One perception is that CUs may lag in technology or have fewer product offerings. While this may be true with a few smaller institutions, today’s large CUs offer virtually all of the services and technology the big banks do. Many CUs also offer competitive rewards in conjunction with their debit and credit cards.

A lack of branches or ATMs may also be a concern. But, CUs are more accessible than ever before. And as cooperatives, CUs can pool their resources, resulting in thousands of shared access points throughout the nation.

Despite the market penetration of the big banks, there are numerous credit union choices. While CUs may have fewer branches than a big bank, access to nationwide ATMs and mobile banking reduces the need for a branch on every corner. In fact, even the big banks are reducing their number of branches.

It boils down to what you, the consumer, prefer. And like any decision, it pays to do your research.

Different from banks

Credit unions may be right for you if you’re looking to reduce expenses and pay less in fees, leverage your money, or bank where people know and care about you. Fewer account restrictions and better earnings may also be priorities. Or, perhaps you’re civic-minded and appreciate a CU’s community focus. Whatever your needs, it’s important to explore your options.

To find a CU that can serve you, search ncua.gov, Lovemycreditunion.org or contact UFCU. We can check to see if you’re within our field of membership, and if not, provide alternatives.

To learn more about how credit unions are different, contact UFCU at (888) 982-1400.

Federally insured by the NCUA. Equal Opportunity Lender.

Sources:

http://www.cuna.org/Research-And-Strategy/Credit-Union-Data-And-Statistics/

http://www.bankrate.com/finance/credit-unions/pros-cons-credit-unions-1.aspx

https://www.depositaccounts.com/blog/types-institutions-banking-system-credit-unions.html

http://www.mycreditunion.gov/about-credit-unions/pages/how-is-a-credit-union-different-than-a-bank.aspx

https://wallethub.com/edu/credit-union-vs-bank/115/

http://money.howstuffworks.com/personal-finance/banking/difference-between-bank-and-credit-union.htm

http://www.moneycrashers.com/why-credit-unions-are-better-than-banks/

http://www.cuna.org/Stay-Informed/Press-Room/Press-Releases/2014-Press-Releases/Credit-Unions-Top-In-Customer-Satisfaction-Among-Financial-Institutions/

http://www.bankrate.com/finance/checking/want-free-checking-check-out-credit-unions-1.aspx?icid=promonextwantfreecheckingcheckoutcredit_unions

http://money.usnews.com/money/personal-finance/articles/2015/01/06/the-pros-and-cons-of-a-credit-union-versus-a-bank

http://www.chicagotribune.com/business/sc-cons-0319-karpspend-20150317-column.html

UFCU Routing Number: 272484894

Insured by NCUA. Equal Housing Lender – We do business in accordance with the Fair Housing Act and Equal Credit Opportunity Act. NMLS #471962.

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