March 9, 2010

Are Credit Unions Better Than Banks?

Lately it seems I've seen a few bloggers or  personal finance experts advocating joining a credit union over a bank.   It seems to be prevailing opinion that credit unions are generally better thank banks.   But I've wondered how much of this was just backlash against the "big banks" getting bailouts from the government and how much was really about credit unions being better.

I've been unconvinced that credit unions are all that great.  I've only been a member of a credit union once and I left them unhappy.  My father also had a problem with a credit union a few years ago.  My limited personal experience with a credit unions hasn't been positive.  But then I've never had a ton of success with banks either.  Eventually every bank will do something to annoy me.

I decided to do some research and compare banks and credit unions over all.    I should note that some of the data below comes from credit union organizations so it would be right to question if its biased, but I am trusting that they aren't publishing lies.

Interest Rates = winner Credit unions

Current data comparing rates between credit unions and banks is published at the NCUA site.

A Comparison of Historic Rates published at NCUA shows the rates for credit unions versus banks for 2003, 2004 and 2005.  In most cases the rates for credit unions were better than banks.  Here is a table comparing some of the rates for 2005 :

Credit Union Bank Difference
36 month used car 5.62% 7.49% 1.87%
30 year fixed mortgage 6.38% 6.39% 0.01%
3 year ARM 5.55% 5.66% 0.11%
credit card 12.06% 13.27% 1.21%
6 month CD, ($10k+) 3.13% 2.88% 0.25%
Money Market 1.44% 0.99% 0.45%
Regular Savings 0.67% 0.67% 0.00%

On average you get better rates with credit unions over banks.

Fees = winner credit unions

According to the CUNA, the average NSF fee is $25 at a credit union and $30 at banks.   Average credit card late fee is $20 for credit unions and $35 for banks.

Better Customer Service = winner credit unions

The Ohio Credit Union League published an article that cites a Gallop poll of consumer satisfaction for banks and credit unions.

Percent of customers "very satisfied" were :
Credit unions = 73%
Banks = 58%
S&L's = 59%

The American Consumer Satisfaction Index has scores on industries.   The overall score for Credit Unions was 84 and the banks got a 75.   They have scores for individual banks and Bank of America scored 67, JP Morgan Chase got a 68, and Citibank got 68.   All other banks got a score of 80.   So the smaller banks did much better than the biggest banks in terms of customer satisfaction.

Other Considerations

Sometimes the location of a bank branch matters to you more than other factors.    The location and convenience of ATMs may also be a big deal for you.  But for some people neither of these really matter all that much.    The features and ease of online banking like bill pay or other online transactions may also matter a lot.  

Bottom Line:   Looks like over all that credit unions win on better rates and better service.    There may be other considerations that would cause you to go one way or another.   I'd do the comparison myself between credit unions in your area and banks.

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