Home > #OWS, finance, FogOfWar, news > What is a Credit Union? (#OWS)

What is a Credit Union? (#OWS)

October 17, 2011

This is a guest post by FogOfWar:

There’s been a call (associated with the “Occupy Wall Street” movement) for consumers to move their bank accounts from large TBTF banks into local credit unions. Nov. 5th is the target date. This is a similar message to one Arianna Huffington gave a few years back.

The above inspire a quick post on the subject of “What is a Credit Union and why is it different from a mega-bank?”

What can I do at a Credit Union?

Pretty much all the same stuff you can do at a bank. They have checking accounts (although they call them “share accounts”, it’s the same thing), savings accounts, CDs, credit cards, debit cards, auto loans, mortgages, lines of credit. All of the stuff a normal bank offers. Some of the smaller CUs (just like some of the smaller banks) don’t offer everything, but it’s substantially the same.

The only difference in services is that you generally can’t make investments (stocks, bonds, etc.) through your credit union. IMHO, this isn’t much of a downside, as the brokers associated with major banks generally aren’t as good as the standalone retail brokers (like Fidelity, Vanguard, TIAA-CREF, etc.)

The other difference is that you can’t just walk off the street and open a credit union account; you have to be eligible in their “field of membership” (more on that below).

How are the rates?

It varies, but in general you’ll get better rates at a credit union than at a bank (certainly than at a megabank). An easy way to check is to look at your checking account statement now (or call your bank) and see what the APY is (Annual Percentage Yield), and then check the credit union to see the APY on their basic share draft account.

There are credit unions with sucky rates out there (often the really small ones—they have a lot of operational costs), but I’ve usually found that I get better rates on savings and better rates on loans from a CU.

What’s the real difference?

The real difference is ownership. Banks are owned by outside investors—usually people who own the stock for a big bank—and they need to pay those owners a profit in the form of dividends (or share repurchases which are economically equivalent). Credit Unions are owned by their depositors (called “members”). That’s why the “checking account” is called a “share account”—you own a “share” (another name for stock) in the credit union. The board of directors is elected at an annual meeting, one person, one vote. BoD members are not paid for serving on the board.

This also explains why Credit Unions can offer better rates: they don’t have to pay a profit to their stockholders, instead that “profit” is returned back to you, the owners. Note that CUs are also exempt from corporate tax, and this makes some difference, but IMHO, it’s the absence of needing to pay dividends that really gives CUs the ability to pay better rates to their customer/owners.

Am I supporting the community when I deposit with a Credit Union?

There’s a good argument that yes, you are. Credit Union’s make loans back to the people in their membership. So the money you put on deposit is being leant back to people in the community of the credit union. Credit unions don’t trade derivatives or run speculative investment books. By and large they make loans to members and then hold on to those loans (i.e., they don’t “securitize” those loans out to other people).

For those who know the movie It’s a Wonderful Life, it’s a pretty good description of how a credit union can work within a community. Technically the movie describes a Thrift (somewhat similar), but it could just as easily been about a CU.

Who is eligible to join a Credit Union?

Each credit union has a “field of membership”. Some are employment-based, so you are eligible if you or an immediate family member works at a certain place. For example, NBC has a credit union for its NY employees. Note that NBC does not own the credit union, the CU is owned by its members (one person, one vote), it’s just that the credit union is there for NBC employees.

Some credit unions are associational. A good example of this is church credit unions (which are pretty common). There are also Community Development Credit Unions, which are set in lower-income areas and anyone in the area can join (Lower East Side People’s FCU is a good example).

There are a number of educational credit unions—these vary, but often faculty, students, employees and alumni are all eligible to join. Again, note that the university does not own the credit union—the CU is owned by the members—it’s just the prerequisite to join that particular credit union.

How do I find a credit union I can join?

There are some “credit union locators” online, but the one’s I’ve seen kinda suck. I’d say try a Google search. So if you live in Boise, I’d search for “Boise Credit Unions”. You can also try www.ncua.gov, which will give you all the credit unions in a particular area. I tend to like the larger credit unions (at least $20m in assets), as they tend to have hit a size where they’re operationally more together (making mistakes on your money is no fun).

You can also ask at the HR department at your job “hey, does working here make me eligible to join a credit union?” If they say “no”, you can say “why not? Is anyone working on having us join up with a good CU?”

Are there any downsides?

There aren’t a lot of ATMs, so every time you need cash & use a bank ATM, you’ll be paying that ridiculous fee. This can definitely suck, although one way around it is to have a debit card and take cash back all the time when you buy stuff (there’s no charge for taking cash back on a debit card—it’s just a question of whether the merchant lets you do it, and most supermarkets and drug stores do).

Also, this makes depositing paper checks a pain in the ass: you actually have to put them in an envelope and mail them to the credit union. How did society function before we had the internet?

Also, if it’s a work credit union, you can check to see if they have a branch at your office—this can make things a lot easier.

Anyway, that’s a quick rundown. Sure I missed something, but I’ll drop it in the comments if I remember later.

Here’s a flyer I made for OWS which contains information on a few credit unions in New York City:

Credit Unions in NYC

FoW

Categories: #OWS, finance, FogOfWar, news
  1. karen
    October 17, 2011 at 2:11 pm

    I’ve been a credit union member for 20 years now. It hasn’t always been convenient– I moved farther away from their office so it became harder to hit the ATM or deposit checks. But they earned my undying loyalty during the 2008-2009 credit crunch. My credit cards all began to raise my rates, through no fault of my own- I have never made a late payment and have great credit. The only place I was able to get a new credit card was at my credit union, and it had a better rate than any of my other cards.
    Also, in my area at least, credit union ATMs are becoming more common. If you belong to a credit union in the network, you can used other network ATMs for free.

  2. Mike Maltz
    October 17, 2011 at 9:14 pm

    Last year my wife and I shifted our accounts from BofA to our local community bank, First Bank of Evanston. It took all summer, because we wanted to make sure that we accounted for all of our automatic payments (see the NYT article of a few days ago). We were concerned about ATMs, since this bank has only 2-3 locations, but the bank said that it would pay for all foreign ATM withdrawal fees up to 8 per month. And this includes overseas withdrawal fees, which we had to pay when we banked with BofA.

    So, if you want to do it, take your time and live for a while with duplicate bank accounts.

  3. FogOfWar
    October 18, 2011 at 10:49 am

    Remembered another point: retirement accounts.

    If you have a 401(k) or 403(b) plan through work, you’re stuck with the provider chosen by your job. You can now move that money (without a tax hit) to an individual IRA when you switch jobs. If you’re self employed you can open an individual IRA.

    Many credit unions do offer individual IRAs, but I haven’t generally been impressed. Often you aren’t dealing with your credit union but with an affiliate. I keep my retirement accounts separate from my bank account, but if you like having them all in one place, this is a (small, IMHO) downside to credit unions.

    FoW

  4. FogOfWar
    October 22, 2011 at 3:11 pm

    Here’s the best CU locator I’ve seen so far:

    http://creditunionaccess.com/

    Also, “Is your money safe?” Short answer: yes. Credit Unions are insured by the NCUSIF (“National Credit Union Share Insurance Fund”), which is the credit union equivalent of the FDIC. Look for the NCUSIF symbol, just like you look for the FDIC symbol.

    If you worry about the FDIC going under, one might make an argument that the NCUSIF is actually safer, but you’d have to be pretty crazy to worry about that level of tail risk in everyday life.

    FoW

  5. ingrid martin
    October 24, 2011 at 1:00 pm

    Can you talk about community banks vs “regular”, such as One Pacific Coast Bank in Oakland. I cannot find a CU that offers QuickBooks connect so I’m considering this bank and am trying to find guidance. Thank you!!!

    • FogOfWar
      October 24, 2011 at 6:46 pm

      Unfortunately, I really don’t know much about community banks other than that the name sounds good.

      Did you try Golden 1? Don’t know if they have quickbooks, but think they’re the largest CU in your area…

      https://www.golden1.com/Membership/default

      FoW

  1. October 23, 2011 at 6:22 am
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