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.


  1. I am not sure if average gives a fair comparison. If one bank gives you a good interest rate (say, 1.6% on savings right now) but another bank gives you really bad interest rate (0.01% or lower), why should the mere existence of the second bank somehow make banks look worse overall? You would simply open your account with the bank that gives you the best rate and ignore the other bank (especially since FDIC takes the risk out of consideration).

    For credit unions, taking the best deal out there may not be possible (just because many will have restrictions on membership), but for banks, especially for online banks with no restrictions on who can open account with them, for a fair comparison you should take one reasonably sized bank that offers the best deal and compare it to credit unions—either as averages or, although this is unrealistic, best rate offered.

    For my experience (with a credit union in the Bay Area), credit unions suck. It offered worse savings interest rate (I don't know on loans; but then, their credit card was horrible; I had $500 credit line with them while I had more than $7k credit line with AmEx, and when I requested a credit line increase, even though I was a member for many years, they denied it), and it didn't even have free checking (nominally free, but 3 months out of a year, they required minimum balance).

    Credit unions claim they offer better deal for members because supposedly they distribute profits back to members, but to me, it seemed like either they were terrible at making profit or, after paying salaries of all who worked at the credit union, there wasn't much profit left to go around.

  2. BKPark,

    All very good points. The averages don't really mean all that much if you're comparing your local credit union to your local bank.

    I also ignored the fact that credit unions have membership requirements. Generally around here the requirements for membership have become so lax that they really aren't a factor. But it does matter for many credit unions.

  3. Interesting analysis. I use one of the "regional" banks and have what I call their "super-duper" account. Mortgage, interest bearing checking and a few other items thrown in for good measure. No fees on the checking, no atm fees, online bill pay, free checks, etc. I like the fact that they have ATMs in a lot of places - usually convenient.

    I think fees should be in two different lists. I don't mind a fee for NSF, haven't used that feature recently. Fees for ATM or check-writing would be a different story.

    My two experiences with credit union haven't been great, but not a fair comparison. I opened an account and tried to get a car loan, but got a better deal at the bank. There was a small membership fee and then they charged you for checks, check writing about a certain number, etc. It wasn't a super-duper account, so these fees were there. Lower than a bank, but still there. Later I opened a credit union account via my employer for expense reimbursement. I've kept it 21 years and had no problems with it, but I write maybe 5 checks a year and do everything else online. There isn't even a branch in the town where I live.


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