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.