Credit Union or Giant Bank? What’s Best Is What’s Best for You

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Updated on Thursday, October 19, 2017

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Credit unions are known for having more flexibility in their offerings and lower rates for some financial products.

Because credit unions generally don’t pay state or federal taxes and are nonprofits, they can offer their members loans at relatively low interest rates; many people use credit unions to make big purchases like cars or home renovations.

Yet for all the benefits, credit unions remain underused. As of 2017, well over 100 million memberships are  held in credit unions based in the U.S., according to data from the Credit Union National Association. However, traditional U.S. banks still hold 91 percent of deposits versus 8.7 percent for credit unions.

The grass-roots, low-fee structure of credit unions can be appealing to consumers who want to save money on banking services. However, if you’re thinking of transitioning to a credit union, make sure you’re aware of the drawbacks, too.

Product offerings

Though credit unions can often extend lower interest rates and fees for some products, a quick look at the offerings at the largest banks and credit unions shows that some of the credit union service offerings don’t always compete with large banks. For example, if you need more sophisticated banking services — for instance, wealth management or commercial lines of credit —  a national bank might be better for you.

For instance, consider the experience of business owner AJ Saleem of Suprex Learning, which provides tutoring and other academic support in the Houston area. He says that when he was shopping for a bank that could meet his small-business needs, “I chose a large bank over a credit union because of available integrations.”

He adds, “My business uses Quickbooks, and some smaller credit unions can’t automatically connect to my accounting app.”

Rewards

Along similar lines, a credit union member might find the credit and debit card rewards underwhelming. According to a report by Credit Union Magazine, whose findings were published in early 2016, repeated surveys find rewards to be the top priority for consumers choosing where to bank. Even so, the report says, 61 percent of credit union decision-makers are unaware of this fact.

Meanwhile, large banks aggressively market their rewards programs and offer all kinds of enticing bonuses to attract new credit card customers.

The one credit card area in which credit unions come out ahead: cost. Larger banks might offer more rewards, but these rewards cards often come with annual fees. Credit unions tend to have low or no-fee offerings with lower APRs.

Eligibility

Many credit unions limit who can join based on criteria like profession, employment, alumni status or other types of associations. Credit unions will usually cite eligibility requirements somewhere on their websites. Even if you don’t meet such requirements, however, you may be able to join some credit unions by making a one-time donation or paying an annual membership fee. It’s up to you to do the research: Find out which credit unions you are eligible to join and if the benefits outweigh the potential membership costs.

Branch locations

Many times, your credit union will have only a handful of locations, if that. Branches might be limited to a corporate campus (if you’re a member of your credit union by way of your employer) or some small geographic area. In some cases, a credit union may only exist online.

Lyn Alden, an investment strategist, points out that a national bank might be more convenient for those who move around as well.

“If you move frequently and don’t want to change banks each time,” Alden says, “then a nationwide bank might be a better fit for you than a geographically limited credit union.”

ATM options

Though credit union networks like CO-OP ATM and CO-OP Shared Branch gives members access to fee-free ATM transactions and banking services at a variety of ATMs, there are a number of credit unions that aren’t in this network. Of the roughly 5,700 credit unions that exist, only about 3,500 are in this shared network. If your credit union isn’t in the network, you’ll likely pay more in ATM fees.

Operating hours

Some credit unions are pretty small. If you’ll be making frequent trips to see a personal banker, you’d definitely want to check on the hours your branch will be open. Again, not all credit unions follow this pattern, so it’s useful to look into all the possibilities and constraints involving limited operations.

Technology

Credit unions don’t have deep pockets like their big-bank counterparts. Though technology adoption at credit unions is increasing, there’s still some lag in comparison with the traditional banking industry.

Some credit unions have been slow to adopt online platforms, mobile banking and other bank-related technologies. There’s a good chance that a given credit union will have painfully arcane online access options — or perhaps none at all.

Mobile banking isn’t the only thing lacking on the technology front. As of 2015, many credit unions had not yet  fully converted to chip-enabled cards.

Autonomy and governance

Credit unions are independent and run by a member-elected board and board-appointed committees, which can change credit union policies on lending criteria and even actual loan approval, according to the Federal Credit Union Handbook, published by NCUA. Though these entities are designed to act in the best interest of members, it’s important to know that the board or committees may change policies that you’ve become familiar with.

On the flip side, rigidity in the credit union’s board structure can cause lags when it comes to making progress on policies that might benefit members, says Kirk Drake, credit union consultant and author of “Credit Union 2.0.”

“Credit union boards tend to take especially conservative attitudes toward change,” Drake says. “Board members sometimes miss the fact that growth and change (and thus some level of risk-taking) are part of maintaining a healthy institution.”

Final thoughts

While credit unions have some drawbacks, it’s also true that they are gaining membership, according to figures from the NCUA. Many credit unions are advancing in ways that make them competitive with traditional banks, but that varies by organization.

If you’d like to do more research into whether a credit union or a bank will best meet your financial needs, here are some resources that can help guide your decision:

In the end, the decision to bank with a credit union comes down to individual preferences and needs. If you value high-touch customer service over convenience and ease of use, a credit union may be the answer. And if credit card rewards and accessibility are priorities, a big bank may be a better bet.

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