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Fed Up with Your Bank? Consider a Credit Union

Fed Up with Your Bank? Consider a Credit Union

September 26, 2007 —

People often complain of their banks—high interest rates, low savings rates, bad customer service, and seemingly little interest in promoting the welfare of the individual. Because banks are beholden to stockholders, they often become involved in questionable investments, both ethically and legally. In recent years, some of the country’s largest banks have become mired in scandal and many people who are tired of the corruption, have begun to look for alternatives—although they may not know where to look.

Credit unions may be the solution. As opposed to banks, credit unions are nonprofit institutions established to focus on service and savings for their members. While decisions at banks are made by stockholders, paid board of directors, or CEO’s, credit unions are member- or customer-owned cooperatives designed to improve the financial well-being of all their members.

The ideology behind credit unions reflects a differing financial philosophy since these collectives bring people together to loan each other money at fairer rates. And since credit unions are not-for-profit, they have higher rates than banks for the same deposits. According to Bank Rate Monitor, the average yield on a money market account is about 1.5% higher at a credit union than the national bank average.

Credit unions are also known for providing better financial guidance and better financial education to their members than banks because employees of a credit union have their fellow members' interests in mind.  Many credit union members also love the personalized service they receive. “People don't say they love their bank.  They say they love their credit union,” said Margaret Blohm, a member of the Dearborn Federal Credit Union.

Credit unions contain membership restrictions that are based along geographic or employment requirements, and there has recently been a string of controversial moves by some credit unions to ‘convert’ into banks as membership erodes (either due to employment of geographic changes). Proponents of conversion say it is necessary for the health of the institution and have received the backing of the banking industry, but conversion opponents fear a bank would charge more for loans, pay less for deposits, raise fees on services and otherwise disregard and disrespect the customers who built it. For many members, they are ideologically tied to their notion of the credit union and refuse to see it as anything other than a cooperative working for its members
The banking industry is not terribly fond of credit unions, because of the threat credit unions present to the lower-service banks. Banks have mounted intensive lobbying efforts to get Congress to pass laws to make credit union operations taxable, but have not been successful.

There are few drawbacks to credit unions, but these generally involve the financial ‘services’ offered by the largest banks. For instance, credit unions often do not include ATM machines, have a limited number of branches (sometimes only one), may not be insured, and many offer a limited range of services.  Credit unions that are insured and protected by the National Credit Union Association (NCUA), a government agency, cover individuals only up to $100,000. 

Overall, however, credit unions offer an alternative to people who are fed up with their bank, either for financial or ethical reasons. 

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