What is a Credit Union
What makes a credit union different from any bank is that it is actually a cooperative financial institution that is owned and controlled by its members. Its members are those who use the institution, such as people who have a checking account, savings account, or loan. The purpose of the credit union is to promote savings and provide credit to its members.
So how does a credit union provide these services for its members? Every member gets a chance to vote for a board of directors, and it is this board that sets savings a loan rates.
It should be mentioned that credit unions are not “non-profit”. They still must turn a profit to be able to provide these services to members and grow its member base.
Can Credit Unions Compete with Banks?
So, given that credit unions are there to serve their members, can they compete with savings rates and loan rates compared to banks?
To look and see if they are competitive, I turn to Bankrate.com, which compares savings and loan rates of thousands of banks nationwide.
First, I look at savings accounts. In the top 10 savings accounts sorted by highest return, there are no credit unions. There are only online and brick and mortar banks.
Next, I look at home mortgages. I keep it simple at a $200,000 30-year fixed mortgage. Once again, in the top 10, there are no credit unions.
Finally, I look at credit cards. For credit cards, I went over to NerdWallet. Not only do I want a very low rate, but I do want to earn some rewards. I also assume that you have excellent credit and don’t want to pay any annual fees. Once again, there were no cards available from credit unions.
I understand that that credit unions may not be able to compete with nationwide online banks or other institutions. I wanted to check one last thing. I looked at the three biggest local credit unions in town, and compared their rates directly to what I saw online.
As of 4/1/11, the average savings rate that the credit unions was 0.45%. All accounts in the top 10 online were over 1%. For mortgage, the credit unions were, on average, 0.50% higher than the best rates online. And finally, the credit unions all offered a credit card, but they were all in line with the nationwide cards at around 14.4%, but none of them offered any type of rewards programs.
The bottom line is that it just doesn’t seem to make sense to go with a credit union if you are looking for the best rates out there. I think there are some reasons to go with a credit union, but getting the most of your money shouldn’t be one of them. If you are looking to open a new account, whether savings or debit, make sure that you shop around for the best rate and reward structure possible.
Readers, what are your thoughts? Are credit unions as good as banks?