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Banks vs Credit Unions
Lukin
Registered User regular
Registered User regular
Almost every time a thread of a financial nature comes up, people toss around the term "credit union". I don't have any experience with a credit union. I've only been a member of banks. After Wiki'ing the term and getting familiar with the concept, I've got a few questions.
Credit unions are owned by the people who have accounts there. Is that as simple as it sounds? So where is the credibility? What happens if the local economy takes a dive and people move away?
How do you find a credit union? Here in Atlanta, you can't throw a rock without hitting a Bank of America or a Wachovia.
Are credit unions typically independant, or do they come in chains? Again, using the Bank of America example...if I wanted a loan, I could walk into any one of the five I pass on the way to work and talk to someone. If I move 50 miles, there's probably going to be a Bank of America there.
These might sound like stupid questions, but I really want to understand this, as based on what I've read, you seem to get better rates on loans and such at a CU than at a chain bank.
Credit unions are owned by the people who have accounts there. Is that as simple as it sounds? So where is the credibility? What happens if the local economy takes a dive and people move away?
How do you find a credit union? Here in Atlanta, you can't throw a rock without hitting a Bank of America or a Wachovia.
Are credit unions typically independant, or do they come in chains? Again, using the Bank of America example...if I wanted a loan, I could walk into any one of the five I pass on the way to work and talk to someone. If I move 50 miles, there's probably going to be a Bank of America there.
These might sound like stupid questions, but I really want to understand this, as based on what I've read, you seem to get better rates on loans and such at a CU than at a chain bank.
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Due to federal regulations, credit unions must limit their membership somehow. Usually they do this regionally, i.e. "if you live/work/worship in New York State, you're eligible to join!"
Credit unions are not insured through FDIC, but rather through NCUA. Make sure that anything you put your savings into, bank, credit union, or otherwise, is in some way federally insured.
Additionally, what the OP mentioned earlier about being part-owner is true. When you open an account with the CU, you buy a share. On top of this, since you are a part owner, part of the profits of the CU are often returned to the shareholder in the form of Equity in the CU, which is generally only redeamable when the account is closed. Having a share also entitles you to have a say in the operation of the CU, such as electing of board members.
Easiest way? Look in the phone book.
Second easiest way? Ask your boss or parents. Your (their) employer may have a relationship with a credit union in your area. My first savings account was with a credit union that my dad had access to for working for Sunstrand. The second was a credit union I had access to for working for Lockheed Martin.
If you find one, it's worth it to at least start a savings account there for the better interest rate on a savings account (although ING beats every credit union I've found in terms of savings account interest rates if you can live with Internet banking) and the more competitive rates on loans.
And I'm not sure if every credit union does this, but the last time my dad bought a car, he was able to borrow the money against money he, personally, had in his account. The catch? He couldn't withdraw that money until the loan was payed off. The upshot? The interest he was paying on the loan was going directly into his savings account. There was no risk for the bank since my dad was good for the money, and there was no downside for my dad because he was paying himself interest on money that he had no reason to withdraw until the loan was paid off.
The major drawback to credit unions is simply that they aren't everywhere, you sacrifice some convenience. But generally, if you have one available, you're better off putting your money in there than a Bank of America or Wachovia account, and much more so, typically speaking, when it comes time to take out a loan.
Typically, they don't offer mortgages, but otherwise any other loan will be much more favorable.
Keep in mind they're non-profit organizations, whereas commercial banks very much are trying to profit from their relationship with you in any way they can...usually fees, or low rates of return on your savings.
Ha ha ha
Second'd
The second post in this thread covered that and also mentioned that Credit Unions are covered by the NCUA.
[Edit]
Well, it seems I took to long to finish my reply, but yeah... :P
Well, you are an hour behind me (right now), so a couple minutes ain't too bad.
I just got too busy making sure I got the linking right... I always forget which part is for the link and which part is for what appears in the post.
Anyway, aside from the equity, are there any benefits to being a member of a CU as opposed to just using the CU? (Like, if I got my car loan through the CU but don't have an account there... or would that then make me a member anyway?)
In order to get the loan you'd have to join. Most don't require a minimum balance though, so all you'd have to do is pay for your share (mine was $5.00cdn) and do all the paperwork. When you join you automatically get a savings and/or chequing account, atm card etc etc, but obviously that would vary by Credit Union. Probably your best bet would be to find out about Credit Unions in your area and give them a call or arrange an appointment. A good opening line would be "So, how exactly does this work?" and/or "So, what are the differences between Credit Unions and Banks?".
Every credit union I've ever interacted with required you to be a member in order to secure a loan. If all you're going to use a CU for is loan rates then throw a few hundred dollars in there and don't touch it, but the only real downside I can think of to using a CU is that you won't have as many ATMs to choose from. And that can be negated by using credit and paying it off every month (my wife and I do this) or using a check card instead of an ATM card.
No different than the savings account most banks make you open for overdraft protection. I've hat $300 sitting in a Wells Fargo savings account for over 2 years for overdraft protection. Their interest rate has made me a whole 12 cents while it sat there.
Thanks. I was more or less just curious. I don't need any loans or anything anytime soon, but I felt the topic should get back on Credit Unions at least in some way. Good to know, though. I used to bank with a CU when I was young, but I stopped using the account and they threatened to close it or charge some ridiculous fee for inactivity, so I took what money was left (it wasn't much--I was young, remember) and put it in with the rest of my banking at the TD.
Really? Usually credit unions go out of their way to be nice to you. I've had only around $150 sitting in my credit union savings account for around 3 years. I moved my checking to Wells Fargo and my savings to ING when I moved from Illinois to California. They don't care. It just sits there with all the other money. Maybe they're just looking the other way because I have an auto loan with them?
That could be it. I didn't have anything else with the CU at the time, so who knows. It wasn't a lot of money, it was an old savings account that my parents created for me when I was young (yay for Fat Cat Accounts! haha). It could be your auto loan is enough business to keep them happy with your accounts. I will say, though, that I generally agree with the anecdotal evidence that Credit Unions are usually much nicer and try to be better to you than regular banks.
Most credit unions have the advantages of small banks, in that they are run locally and have rules and benefits that correspond to local markets. Those small banks typically offer better rates and better customer service, with more stringent rules about whatever. Credit unions usually are not bought out by Bank of America, unlike small local banks.
The downsides are similar to small banks, though. You have limited ATM access and some don't even offer online banking. Or the online banking is really barebones.
Big banks aren't necessarily bad, mind. I have Bank of America and I've had to call customer service twice, and both times I've spoken to amazingly friendly people who helped me out, went above what was necessary, and even explained what was happening that caused the call in the first place (so I was aware of what happened, rather than it just being something random that I couldn't keep an eye out for). My wife got seriously pissed off at her credit union because they refused to cash her federal savings bond, which is technically legal tender and must be cashed at any bank.
Most people I know who have credit union accounts keep them because of other savings benefits, such as good rates on CDs. If you're just looking for somewhere to stuff your money and don't really plan on having enough in the account to ever earn interest, accessibility will probably be more important to you. Match the account type you need with the way you spend and use money.
How is that any different than just withdrawing the money to pay for the car and putting a fixed amount back each month? Was the credit union also paying him interest on the money in the bank?
Yes, they were. I suppose I should have made that more clear.