You don’t have to be part of Occupy Wall Street to have a bad taste in your mouth about big banks. Big banks – the “too big to fail” bailout banks like Bank of America and Citibank, seem to have come through the recession relatively unscathed compared to the typical American consumer. But even with all the talk there has been from the Occupy movement and others about switching from big banks to local credit unions, some consumers shy away from the idea. When consumers are trying to decide between banks and credit unions, the common misperception is that banks offer higher interest rates for savings accounts.
Bank vs. Credit Union Rates
The truth is, big bank savings account interest rates are at an all-time low, sometimes so low that you lose money putting the money in savings because inflation is growing too fast to make it worth saving the money at all. Rather than ditch the idea of savings credit unions offer much better interest rates – rates you can save with – that are five to ten times higher than big bank rates (the average credit union savings account earns about .11% interest annually, compared to the .01% at big banks).
Benefits of Choosing a Credit Union
Choosing a credit union for your savings account is a good idea for other reasons, too. Credit unions are non-profit and owned by those who have accounts. By depositing money in a credit union, you become part owner of the credit union. You get a voice in the management of the credit union. And there is no fat-cat CEO pocketing money with one hand while foreclosing on homeowners with the other.
Credit Union Memberships
Credit unions usually have membership requirements, but there are credit unions for nearly anyone. There are credit unions for veterans, teachers, and even for people who live in certain regions. Some credit unions are for employees of specific businesses. Because credit unions offer higher interest rates, there are usually strings attached. Some credit unions will not let you withdraw the money for a certain period of time, while others require you to maintain a minimum balance to get the best rates. Some credit unions, however, offer great rates no matter how much you deposit. Credit unions often have special incentives to help kids open an account and learn the benefits of saving. There are a variety of websites through which you can compare different credit unions; when choosing a credit union, the most important factor is to make sure it offers the banking products and services you need.
Hidden Downfalls of Credit Unions
One of the biggest drawbacks of credit union banking is the limited number of branches and ATMs that are available. However, the ATM card will work at ATMs across the nation, so if you’re traveling outside the area of your credit union, you can still access your money.
Another issue that occurs with credit unions is cross-collateralization. Cross-collateralization occurs when the same asset is used to secure more than one debt. For example, if you get a loan to buy a vehicle through your credit union and you also have a credit card at the same credit union, the vehicle may also be used to secure the debt on the credit card, making it more difficult to sell or trade assets.
If you are in the unfortunate position of having to file bankruptcy, being a member of a credit union can be a hindrance. Where a bank will allow you to keep your checking and savings accounts open even after the bankruptcy is discharged, most credit unions will close your checking and savings accounts. Because it can be difficult to open new accounts after a bankruptcy is on your record, this can be a real drawback.
For most people, the drawbacks to banking with a credit union are fairly minor in comparison to the advantages. If you want to find a credit union in your area, the best place to start is at the government website, National Credit Union Administration. From there you can use the credit union locator to find the right credit union for your needs.