If you’ve been thinking about closing up your regular bank account in favor of joining a credit union, make sure you understand both the benefits and disadvantages of making the switch.
As bank fees continue to rise and many retail banks impose penalties on low balances, many Americans are turning their sights on credit unions in their area.
A recent grassroots consumer movement called “National Bank Transfer Day” pushed many to finally make the switch.
But are credit unions really a good alternative to banks? Here’s what you need to know:
What a Credit Union Can Offer
Unlike retail banks, credit unions are owned by their members so they are more focused on delivering a customer focus service and offering a basic set of financial products.
If you’re just looking for the basics – namely, a checking account, savings account, and maybe a home loan or auto loan, a credit union can satisfy your needs. If you prefer to support local businesses, you might also prefer to bank with a credit union in your area out of principle.
Since credit unions are non-profit organizations, they’re typically thought to be more concerned about their client-members’ best interests. They also sometimes offer perks and rewards for their members that banking customers don’t get.
For example: once the credit union has covered all of its basic costs, any “profits” are paid out to members as a bonus, sometimes in the form of dividends. Another benefit? Lower rates on credit cards and loans.
By law, federal credit unions can’t charge an interest rate of more than 18% for any credit card – and that includes the default rate that gets imposed if you’re late making a payment. This one feature alone gives credit unions “a big advantage” over banks and makes them more “consumer friendly,” says David Morrison, senior staff writer for the Credit Union Times.
So if you’re also in the market for credit cards or loans, and a local bank or a big bank hasn’t satisfied your needs, a credit union may offer you the best deal available.
In general, the three best benefits of a credit union boil down to: good customer service, lower borrowing rates, and a focus on people, not profits.
Should You Make the Switch?
Is it time to make the switch from a bank to a credit union? If you can answer “yes” to some or most of the following questions, it may be time to close up that bank account and head on over to your neighborhood credit union:
Do you want fee-free ATM services?
Are you interested in opening a new or different checking or savings account?
Do you want to open a “no touch” savings account at a high interest rate?
Do you prefer more personalized services?
Are you interested in supporting a local business?
Are you willing to go through all the steps to close down your bank account? Some banks do have a fairly complex process and may require an in-person visit with a personal banker, signed documents sent via certified mail, and multiple phone calls.
Making the switch from a bank to a credit union can pay off in the long run and may give you a chance to enjoy some hassle-free services. Still, depending on where you live, you may not get the full scope of services you would at a retail bank; some credit unions still don’t offer online banking options, for instance.
But Morrison says those organizations are in the minority. He notes that among the country’s roughly 7,000 credit unions, it’s very easy to find credit unions in every state offering financial products and services that are on par with the offerings from banks.
So take some time to learn about the pros and cons of both financial institutions to make the most informed decision for your particular situation.