Is It Better to Bank With a Credit Union?

Bank

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It’s been a long time since I dumped a commercial bank for a large local credit union.  At the time, I was sick of my bank’s name changing every other year, and I hated the large fees that they charged for overdraft and falling below account balance requirements. The credit union offered low fees and a member dividend every year. Add in the friendly staff and the move seemed like a no-brainer.

It seems as though the rest of the nation might be catching on. According to the LA Times, over 1.3 million Americans switched to Credit Unions last year. The article cites factors such as Occupy Wall Street, congressional ire over debit card fee rate hikes and Bank Transfer Day which was organized by activists.

Call me anti-political, but when I start seeing political movements and agendas shape common money wisdom, I get skeptical. So, I’m rethinking credit union banking and taking a new look at which is better for consumer banking: large commercial banks or credit unions?

Banks Versus Credit Union on Costs

Are credit unions cheaper than commercial banks? With the way major banks are increasing fees it sure seems like it. However research from a Fed economist provides a more nuanced picture.

The study found that credit unions charge less in fees, but more in upfront costs. For example, commercial banks offered the best introductory APR for credit cards, averaging 8.5%, while credit unions charged 11.2%. However, late fees for credit cards were $35.84 for big banks and $18.54 for credit unions.

The same goes for depository accounts. Overdraft fees for commercial banks averaged around $22.93, while credit unions hovered at a friendlier $19.75. However, one area of difference has been in closing costs. According to CBS news, credit unions charge 2% less in closing costs for mortgages.

Banks Versus Credit Unions on Interest Paid

When it comes to paying interest; credit unions are the better choice. On average, credit unions pay .3% more in interest on certificates of deposits. While I don’t think that .3% interest will make a giant impact on income you can earn, more money is still more money.

Putting a Price on Customer Service

This is really where you are likely to see a major difference. Credit unions are owed by the members that bank at the institution, while banks are investor owned. It all adds up to a very different banking experience.

Many banks are actually looking for ways to charge for using bank tellers and customer service. However, great customer service can save you money.

When I was going through the closing process for my home, I’d indicated on my application that I wanted to use a particular title company. I worked for a banking company and received a free title search and insurance. Meanwhile, my lawyer, who I would not recommend, took it upon themselves to do the title work and jack up our bill. Our credit union caught my lawyer’s mistake immediately long before closing. They notified me and I was able to iron out the mess (and chastise my lawyer).

The lesson from my experience is that my credit union did not need to work out my title search. They had no interest in who did title and they earned no money from helping me to work out the issue. They could have simply ignored my application and allowed my lawyer to charge for the title search. However, they did take additional steps and it saved me hundreds of dollars.

Usually, poor customer service makes us angry, but doesn’t cost us money. When it comes to banking, it can mean dollars saved or earned.

Which is Better?

For most people, it’s probably a trick question.

Overall, credit unions have better customer service, savings interest rates and lower fees. However, lower fees won’t be much of an advantage for someone that doesn’t have trouble managing their accounts and meeting balance requirements. Banks offer lower overall costs, which is a noticeable advantage.

Perhaps the best answer is that they each have their strengths and weaknesses. It’s best if you pick the institution that best fits your personal needs best.

Avoid These Investments that Don’t Keep Pace with Inflation

Investing for retirement is nothing more than a race, and your pursuer is inflation. If you stash your savings in anything that inflation can catch, you’ll only be wasting your money.

Inflation is the word people working at the Fed (with intelligent sounding titles, like “chairman”) use in place of the phrase “rising prices.” Inflation is the realization that as time goes on, things get more expensive. Hop in your time machine and go back 10 years. You’d find that gas was nearly a dollar per gallon, movie tickets were almost half what they currently are and property taxes were still outrageously high, but slightly less so than today.

(Of course, if you’ve recently thought about refinancing your home, you know that deflation is just as much a concern as inflation. But will save that for another time… :))

Why Do Savers Need to Worry About the Pace of Inflation?

Most people think savings is the opposite of spending, but this analogy isn’t really accurate. Savings is just delayed spending.

Savings Account

Photo by jonathansin

Think about savings and inflation this way. You golf every week for $22. Then one day decide that you’d rather quit golfing, save the weekly $22 for 30 years so that you can golf for 30 years after you retire. You are diligent and stash away the weekly $22 for the next 30 years, right up until retirement. The first day of being work-free, you grab your old golf clubs and head to the links. Surprise, a round now costs $65 to play. Grabbing a calculator, you realize that instead of trading 1,560 rounds of golf in the past for 1,560 rounds of golf in the future, you traded 1,560 rounds in the past for 528 future rounds.

Would anyone disagree that 1,560 rounds is better than playing 528 rounds? This is exactly how savers get burned when they invest in instruments that don’t keep pace with inflation. Unfortunately, there are a number of ways people invest that lose to inflation.
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Why Your Children Should Open a Roth IRA at Age 18

I remember when I started saving for retirement. My employer announced that they were going to begin a 401k plan with a match. I didn’t know much about investing at the time, aside from the facts that I:

  1. Wanted to retire as early as possible,
  2. Knew the match was like free money (I like free money)
  3. Heard 401k plans are a good way to go.

Starting at 21, I was probably ahead of the curve. Many of my friends began their savings the next year, after graduating from college. I’m certain that there are many others that put off saving well into their careers. The point I’m trying to make is that most people are faced with the option of saving for retirement by the time they have a job. That’s not to say that they make the smart choice of actually opening an account.

Bull Market Wall Street

Photo by Carlossg

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Learn How to Monetize Anything by Understanding the Value Proposition

Entrepreneurs bandy a plethora of official-sounding buzz-terms like “blue ocean strategy” and “ROIC.” If you want to monetize any goods or services, value proposition is the buzz phrase you want to get to know.

DMV lineI’m a monetization nerd. When I drive home from work, I wonder if I can I find a way to make money during my daily commute? When I’m standing in line at the DMV, can I make money during my waiting time? At the grocery store, how to make money shopping each week gets as much focus as my grocery list. When I’m doing my bills, I think about how to make money on credit card debt by cashing in on reward miles.

When I’m exercising my monetization muscles, I’m not thinking up hare-brained business schemes. I try to build solid value propositions.

What is a Value Proposition

A value proposition is no different than a marriage proposal made to a complete stranger.  The only real difference is that the proposal is pitched to a customer instead of a future spouse.

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