The Downside of Credit Unions

Credit union membership is at an all-time high, and much of its growth is likely a product of our rising disillusionment with traditional banks. Banks, after all, are run by executives aiming to enrich stockholders (and themselves), while credit unions are owned by, and run for the benefit of, their members/depositors.

Indeed, according to the Credit Union National Association, 1.3 million people joined credit unions last year, and reaped the benefits. Credit unions tend to offer more affordable services, and lower interest rates, than banks. This infographic from IBM Southeast Employees' Federal Credit Union compares the difference in average national rates (albeit not the latest available) and credit union rates. For example:

• 36-month used-car loan: 3.7% for credit unions, 5.47% for banks

• 30-year fixed-rate mortgage: 4.29% for credit unions, 4.2% for banks

• 3/1-year adjustable rate mortgage: 3.36% for credit unions, 3.54% for banks

• Classic credit card: 11.64% for credit unions, 13.22% for banks

See the whole infographic at the bottom of the article.

Moreover, these not-for-profit institutions earn high marks in customer service. According to Temkin Ratings, in 2012 credit unions topped all major (and many minor) banks in overall customer experience.

However, before you move your banking business to a credit union, be aware that there are drawbacks that, although they may seem minor, may make you think twice about migrating.

You may not be eligible to join one. In the past, credit unions mainly served people with a certain affiliation, such as to a particular employer or association. Today, though, restrictions are not as tight, and there are many community-based credit unions, too. There are more than 7,000 credit unions, in fact, in America. But you'll still have to shop around to see if you can clear the eligibility hurdle before passing "Go."

They don't always offer as many features as big banks. Credit unions may not employ the latest technology, such as apps that allow you to pay bills on your smartphone. Also, you may not enjoy as broad an ATM network -- though many credit unions have begun to share access with other institutions to offer members better access to banking services.

Their credit cards typically offer lower rewards. With a little digging at a site like bankrate.com, you may be able to find a credit-union credit card that offers decent rewards. Still, most big banks tend to be more generous with points and other reward card perks. The key is to watch out for fees. You may be able to make up the difference in the rewards by paying lower fees for your credit-union banking. However, even credit unions have been hiking some fees, though, so it can pay to shop around. And don't be surprised by future fee increases.

Despite those drawbacks, a credit union can make a lot of sense for many consumers. For more help finding out if a credit union would be a good fit for you, see:

• National Credit Union Administration

• Bankrate.com on Credit Unions

• Find a Better Bank

Motley Fool contributor Selena Maranjian holds no position in any company mentioned.



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Infographic

by IBM Southeast Employees' Federal Credit Union