Like many consumers, Michele Engel was fed up with big banks. Although she’d started at a small community bank where the tellers knew her name, the culture changed through a series of buyouts by increasingly larger banks.”They’re too impersonal for the ordinary consumer,” she says. “You’re just a number to them unless you’re a very large depositor.”
That’s why Engel switched to a credit union last winter, a move many Americans are likely considering, especially with news of debit card fees and other frustrations. In fact, more than 20,000 people have “liked” “Bank Transfer Day” on Facebook, a movement urging consumers to transfer their money to a credit union on or before November 5.
Before making the switch, here are some factors to consider.
1. Membership requirements and fees. Credit unions used to have strict membership requirements. For example, if you were a government employee or a member of the teacher’s union, you could join the associated credit union. Today, “common bond” requirements are much more relaxed. “If you breathe there, you’re in common bond with everyone else,” quips Dr. Robert Barone, CEO of Universal Value Advisors in Reno, Nevada. Ondine Irving, a credit union consultant and owner of Card Analysis Solutions, adds that nowadays there’s a credit union for virtually every type of consumer, even those with less-than-stellar credit scores.
However, a small number of credit unions charge a membership fee. “Credit Union membership requires an initial deposit ranging from $5 to $50,” explains Irving. “You will want to ensure this initial deposit remains yours and becomes part of your new savings account [instead of using it as a membership fee].” Her website CreditCardConnection.org compares credit union credit cards based on fees, rewards, and other criteria. She also suggests asking the credit union if they own their credit card program or if it’s run by a bank. “This will tell you a lot about the credit union’s philosophy on fees,” she adds.
2. Availability of services you need. Many people prefer the personal attention of a credit union, but you’ll want to make sure it offers all the services you need, as this varies. If you’re used to online banking, check if the credit union offers this, including online transfers, e-statements, and account history. If you’re a frequent traveller, Barone suggests asking if they can service you when you’re out of the country.
Also ask about ATM fees, since it may not always be convenient to use your credit union’s ATM. Some credit unions will reimburse a limited number of outside ATM transaction fees per month, and according to Irving, many belong to the CO-OP, a credit union-only network of ATMs. If you’re a member of one of those credit unions, the CO-OP website or iPhone app can help locate one of their 28,000 surcharge-free ATMs throughout the country. So if you’re travelling or simply can’t get to your credit union’s ATM, you can withdraw (and in some cases, deposit) money at a CO-OP Network ATM. If your credit union is part of the Shared Branching network, you can complete face-to-face transactions at another credit union.
3. Interest rates and insurance. Credit unions offer many of the same products as banks: checking, savings, money market accounts, CDs, IRAs, mortgages, and auto loans. In many cases, their interest rates can be better than banks. As Irving explains, “the investors of a credit union are its members, not Wall Street. Therefore, any profits made on loan interest income and fees are returned back to the members in terms of higher savings interest rates and lower loan rates.”
However, Barone and Irving stress the importance of making sure your credit union is insured by the NCUA (National Credit Union Administration). “This is the government-backed agency, just like the FDIC, and your deposits are insured up to $250,000, just like the FDIC,” says Irving.
Large financial institutions are banking on the fact that some consumers would rather stay put than spend the time opening new accounts and transferring their money, according to Irving. She suggests starting with a credit union checking or savings account so you can start switching payroll deposits and automatic transfers while waiting for checks from your other bank account to clear and your new credit card to arrive.
As for Engel, she’s happy with her decision to join a credit union and says moving her money wasn’t a huge hassle. “Once I was sure that all of the checks written on the bank’s account had cleared, I went into the bank, withdrew the remaining balance in the accounts I had there, and told the teller that I was opening an account at a credit union—and why,” she says.
Even if hundreds of thousands of other consumers follow suit, Barone predicts that it will have little impact on big banks because much of their deposits come from large corporations, not individuals. “Don’t do it out of spite,” he says. “Do it because it’s better for you as a consumer.”