Are Credit Unions as Good as Banks?

credit unions and banksIf you watch any personal finance show, or read any personal finance books, you may have heard that local credit unions are great places to save your money and get credit. So, is it true?

 

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.

 

Bottom Line

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?

 

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Comments

  1. says

    I literally just signed up with PenFed credit union today to get a 5% cash back card for gas. Show me another company that offers the same rewards? The only one I know of is my Amex Blue, but that’s only after I’ve spend $6,500 on the card in a year.

  2. says

    I completely agree that credit unions can’t compete with larger banks. I personally have accounts with major banks but I do most of my banking through a credit union. For example I have them for my checking account where I recieve my paycheck and where money flows from to pay credit card bills. I enjoy going to them with checks and such because they are always kind and willing to help. I’m not sure if you took this into consideration but some of them offer dividents as well which I too recieve. I believe that this changes the interest that they pay out.

    -Ravi Gupta

  3. says

    Why do you think bankrate.com or other comparison sites would list credit unions? They don’t pay referrals!

    Here’s a simple example. I use the above site to find the best paying checking account and I get flagstar direct bank with an APY of 0.90.

    I’ll compare it with my credit union Alliant which won’t turn up on any comparison site (it’s a credit union!) and that offers me 1.10 APY!

    The same goes for mortgage comparisons. A credit union beats banks any day.

    I bank with credit unions and have my mortgate with CUs and none of the comparison site banks can beat the rates.

    (If there is such a bank, I definitely would like to know!)

  4. says

    I have been a member of a credit Union (Xerox) for nearly 40 years! I use my credit union for car loans, although I have not had a car loan in 11 years. It is another resource to compare when you are making your financial decisions.

  5. says

    I think you have to put in a little more shoe leather to find a good credit union as they don’t have a marketing budget like the online banks.

    But they have a lot of advantages if you find the right one. Good points in your article.

  6. says

    I have to strongly disagree with this. As Thousandaire explained above, PenFed is about as good as it gets! And you won’t see MANY local credit unions on bankrate or nerdwallet…there are just too many and they are obscure. I have a credit card from my local credit union with an APR of 7%…show me a bank that has that. Free coin counting machine. Free ATMs. Savings acct rates are typical of other brick and mortar banks, not that I believe in savings accounts though, since inflation kills them. I wrote an article of the top 5 advantages of a credit union over a bank, you should stop by and read it…i always like a little dissenting opinions

  7. says

    I am a big bank guy (ING and Chase) but I am not sure bankrate would have the best rates regarding little (in comparison) local credit unions…

  8. says

    @Justin – I have one card through a bank that is prime +0.5%. That currently has only a 3.75% interest rate. I never use that card though, as I don’t carry a balance. I look at cards with the highest rewards possible to reap the benefits. Also, there are a ton of banks that offer free ATMs and coin counting.

    @Evan – Maybe we should make a site like Bankrate for credit unions?

  9. Jose says

    I have been banking with Navy Federal Credit Union for over 25 years.

    Every time I need a loan, I do my shopping, and always have to go with my credit union due to lower rates.

    I am currently refinancing under HARP and there is no comparison with commercial banks.

    I am sorry, the internet is dominated by interest groups with big marketing budgets, which is why there is not that much advertising from non for profit credit unions.

    • says

      Glad to hear your perspective. Navy Federal has been awful for me when I’ve tried to get a loan. Their rates were about 1% higher than what I was able to get from a bank (Wells Fargo), and their customer service has always been miserable. I try to avoid them whenever possible.

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