Sunday, February 7, 2010

Ditch Your Bank for a Credit Union

I'm doing some research right now about credit unions for the discussion I'll be leading during Wednesday's permaculture class. The discussion will be about money and in one part of the class we'll be talking about where we store our money.

Permaculture is a lifestyle and it's important to keep your hard-earned money in a safe and reliable place. (from Are Credit Unions Foolish) According to the Credit Union National Association (CUNA), a credit union "is a cooperative financial institution, owned and controlled by the people who use its services. These people are members. Credit unions serve groups that share something in common, such as where they work, live, or go to church. Credit unions are not-for-profit, and exist to provide a safe, convenient place for members to save money and to get loans at reasonable rates." Essentially, credit unions are collectives of people brought together to loan each other money at fair rates. Pretty simple, actually.

I stumbled upon this interesting article called "Ditch Your Bank for a Credit Union"

By Liz Pulliam Weston

A lot of you are really and truly sick of your banks.

You're sick of getting socked with fees, or tripped by hidden penalties, or earning lousy interest rates. You're tired of being treated like a nuisance rather than a customer. And yet you have little hope that the bank down the street is any better.

But who says you have to settle for a bank? Relief could be as close as the nearest credit union.

Because so many people are fuzzy about the differences between banks and credit unions, I'll highlight the three most important distinctions:

  • Credit unions are member-owned. If you have an account at a credit union, you're a part owner in the enterprise. That may not entitle you to use the executive washroom -- your CU probably doesn't even have an executive washroom -- but you're likely to be seen as a person rather than as a "cost center."
  • Credit unions are not-for-profit. This status helps explain why interest rates tend to be significantly better, and fees fewer and smaller, at credit unions than at banks. Any profits credit unions do make are distributed as dividends to their members. Contrast that with banks, which continually invent new fees and policies to boost profits (and to pay those stunning executive salaries).
  • Banks hate -- hate -- credit unions. President Franklin D. Roosevelt signed the Federal Credit Union Act into law in 1934 to "promote thrift and thwart usury," and banks have been gunning for them pretty much ever since.

Because of their not-for-profit, cooperative structures, credit unions are exempted from most state and federal taxes. Banks have convinced themselves this is an unfair advantage and have spent a lot of effort, plus a fortune in lobbying fees, trying to legislate credit unions out of existence, or at least limit who can join. (I guess they thought the money was better spent there than on, say, improving their interest rates, reducing their fees or slashing their telephone hold times.)

Are you eligible? Almost certainly

Fortunately for you, banks have failed pretty miserably in their efforts to contain the competition. That's why the Credit Union National Association, the CUs' trade group, can brag that virtually everyone in the U.S. can belong to a credit union, thanks to where they live, where they work or the associations to which they belong.
Average interest rates at credit unions vs. banks
Consumer loansCredit unionsBanks

Credit card



48-month new car



48-month used car



36-month unsecured



Mortgage loans




Five-year ARM



30-year fixed




Regular savings



Interest checking



Money market



One-Year CD



Source: Datatrac, December 2008

The nation's credit unions count 90 million members, and their trade association estimates members save $8 billion a year thanks to better interest rates and reduced fees. Credit-union-issued credit cards, for example, tend not to have annual fees or to charge punitive interest rates for a single late payment. Most credit unions offer free checking accounts, and penalties for overdrawing those accounts tend to be lower: a $20 or $25 fee is typical, compared with up to $39 a pop charged by banks.

Also, (from Consumer Savy Tips) "Because credit unions tend to be smaller and cater to a select group of people, there is more personalization between the staff and the members."

Larger banks (not naming names but you can guess) will invest more regularly in some environmentally harmful practices, like coal-mining, because their number 1 mission is to make money for shareholders, plain and simple.

Are you convinced? Who's taking their money out of a big-bank tomorrow and putting it in a local credit-union? Comments encouraged!

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