Should you join a credit union? Here's what you need to know

In the world of personal banking, credit unions always seem to come off as the good guys and banks, well, I probably don't need to tell you which role they're typically assigned.

But what makes credit unions so wonderful? And do they really live up to their shining reputation? Here's what you need to know:

How does a credit union differ from a bank?
A credit union acts just like a bank, providing all of the same services: checking, savings, mortgage lending, auto loans and business loans. The one distinguishing factor is that credit unions are nonprofit institutions.

"The big difference is that they are not beholden to shareholders, so when they make a profit, they don't give that to shareholders. Instead, credit unions return that profit to members in the form of lower fees and better service. So chances are good that you'll make more interest on a CD at a credit union than a bank, and pay lower checking fees, for example," says Glen Lazovick, senior vice-president of business development and marketing for Mid-Atlantic Federal Credit Union, which has four branches throughout Maryland.

What other perks do credit unions offer?
While credit unions increasingly have worldwide reach, they are still very localized--meaning,they are run and owned by people in the community--which, at least for many people, is a plus.

"So that accountability factor is great. You don't have that with big banks," says Remar Sutton, chairman of, a consumer education group funded by credit unions. (The site runs like a newspaper, with editorial independence, and Sutton has been both a critic and advocate for credit unions for almost 25 years.)

I've talked to quite a few presidents of credit unions who have said that one reason they tend to have less punitive overdraft fees, for instance, is that they know they're going to run into their customers at the supermarket and at soccer games. And that it wouldn't be a pleasant experience if they're constantly jacking up prices and rigging the system so that their customers are slammed with overdraft fees.

So customers don't get hit with many (or any) overdraft fees at credit unions?
Don't get the wrong impression. You can definitely get slammed with fees. If you spend money you don't have with your credit union's checking account, you'll get an overdraft charge or non-sufficient funds message just as you would at your bank. "The actual fee amount and general concept is much the same at all financial institutions," says Amy Stanton, assistant vice-president of marketing at Connex Credit Union headquartered in North Haven, Conn.

The thing is credit unions may be more willing to work with you. "We offer many 'back up' options where an overdraft can pull from any other account they have here instead of getting the fee," says Stanton.

Sometimes, credit unions even structure the way they run charges through the checking account, to ensure that if you spend too much, you'll have fewer fees than the maximum amount possible. And generally, the overdraft fees are typically a little less than you'll find at a comparable bank.

What are the drawbacks to joining a credit union?
For a long time, credit unions didn't have as many ATM locations as banks. For many potential customers, this was a major drawback. But increasingly, through partnerships, credit unions have created excellent ATM networks, where you can get your money without any sort of charge, as long as you use the network or parameters that they've set up for you. Unless you really just love the idea of banking with a giant bank, and perhaps enjoy the ease of having numerous branches that you can waltz into, it's pretty hard to come up with a significant drawback to banking at a credit union.

Are checking accounts FDIC-insured at credit unions up to $250,000, the way they are at banks?
Yes and no. They're insured up to $250,000, and you have nothing to worry about, but they're insured by the National Credit Union Administration, an independent federal agency. There are some -- less than 200 -- that are insured not by the NCUA but by private insurance.

So how does one find a credit union? I've heard you have to be part of an organization to join.
That's true, but less true these days, as more and more credit unions base membership criteria on where you live, instead of whether you belong to a union, or have a job at a certain hospital, police station or some type of business.

Stanton at Connex suggests checking out the Credit Union National Association web site or your state credit union league web site (type in Google or Bing, "state credit union" and your state, and it should pop up). She adds that "the National Credit Union Administration site is a good follow up if you're interested in checking out a credit union's financial performance."

Are there any bad credit unions out there?
Sutton says, yes. "There are about 5,500 credit unions, and I believe there are no more than one or two hundred that are 'bad' in my book, so this isn't a big problem," she says. "My definition of a bad credit union would be a credit union that has binding mandatory arbitration in their loans and credit cards and tries to make you do a loan or get a credit card without comparing its rates and terms to other institutions. But frankly a bad credit union is better than the best bank, in my opinion."

Binding mandatory arbitration, for anyone racking their brains for the definition, means that you don't have the right to sue the credit union in the case of a class action lawsuit.

Anything else I need to know?
Sutton of points out that if you're financing a used vehicle, "you should virtually always finance at a credit union. Credit unions don't make 'opportunity' profits. They don't charge you more just because you don't have knowledge. Probably the biggest reason to find a credit union and join right now. But banks and especially car dealerships charge you more if you don't know what you're doing--and dealerships are allowed to charge ridiculous rates on used vehicles. In some states, a dealership can charge you 34% interest. At a credit union, you seldom are charged more than five or six percent, if that."

Geoff Williams is a regular at WalletPop and the co-author of the new book Living Well with Bad Credit. He has a checking account at a regular, giant bank, but he also has had several accounts with a local credit union for the last 18 months or so and has had no regrets about joining.
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