Should you consider a credit union?
Credit cards have come a long way in the not-ripping-people-off department, thanks to the much-needed protections instated by the CARD Act in 2009
But that doesn’t mean that credit card issuers aren’t finding creative (and often legal) ways of tricking you out of your hard-earned cash. My point: The banking biz still isn’t perfect. And you have an alternative you might not have ever considered: A credit union.
You can think of credit unions as not-for-profit banks formed by members who have something in common, such as an employer, profession, religious group (like the Town & Country Federal Credit Union I visited in Portland, ME), alma mater, or community. When you join a credit union, you have access to many financial products, like credit cards, savings accounts, auto loans, and more. Since credit unions aren’t concerned with revenue, they tend to pay higher interest rates on savings accounts and charge lower interest rates on loans. And credit unions typically charge less for everything from money orders to bounced checks.
A study by The Pew Health Group shows just how big the difference can be between credit cards offered from banks and credit unions. On the low end of advertised interest rates, credit unions offered a median APR of 9.90%, compared to banks’ median offer of 12.99%. About 94% of bank credit cards still carry punishing penalty-rate terms, whereas only 46% of credit union cards do the same. Another advantage: You can still find a credit union card that offers a fixed interest rate, so you’re never left wondering what the APR will be on your next bill. The study didn’t encounter a single bank credit card with a fixed rate.
Credit unions also often offer debt counseling and other financial advice, higher interest rates on savings accounts, and, if they’re covered by the National Credit Union Administration (NCUA), federal insurance for accounts up to $250,000.
While the advantages of credit unions are hefty, there’s also a downside to consider. In some cases, you might find a very limited number of ATMs you can use to access credit union accounts, or you may pay a high ATM fee. Online banking options might be restricted, too.
So next time you’re in the market for some banking products, add credit unions to your research list. Start with the Credit Union National Association, which will help you find your state’s credit union league. From there, you should be able to identify one or more credit unions that suit your needs.
Would you consider a credit union?
Cartoon courtesy of RR Anderson.