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Credit unions - better than you might think

By Gina Pogol

Credit unions - better than you might think

As a business writer and editor, I spend a large part of my day keeping up with economic news (these days that usually involves watching helplessly as financial poop hits the proverbial fan) and working up a lot of indignation over the country's economic state. So it's been a very long time since I spared a thought for credit unions, but they're worth paying attention to.

Credit unions: the historical prospective

Credit unions were a natural outgrowth of the medieval guild system in Europe, which provided business services to their members. The first modern credit union was formed in Germany during the Industrial Revolution in 1864, and the first credit union in the U.S. was started in Massachusetts in 1909. However, credit unions were slow to win acceptance here, probably because Americans like that whole rugged individualism thing and co-ops are for sissies...

Credit unions: yawn

Traditional, yes -- but credit unions are not sexy or hip. They don't have mascots and they don't own football stadiums. You won't find a lot of bells and whistles and gee-whiz at your local credit union. But you also won't find a CEO making gazillions of dollars while amassing a worthless subprime portfolio and begging for a bailout.

What makes credit unions different?

Credit unions are run for the benefit of their members. Here is a list of the characteristics that define credit unions:

  • Non-profit cooperatives
  • Owned by members
  • Run mostly by volunteer board members

On the other hand, most depository institutions are:

  • Profit-driven
  • Owned by outside shareholders
  • Run by paid board of directors

The idea is that credit unions can pay high interest on savings accounts and charge less for loans because they don't have to turn a profit, and as non-profit organizations they don't have to pay taxes. They also don't require huge marketing budgets and they don't run around Wall Street looking for other banks to take over.

Credit unions are typically created for the benefit of specific communities, such as employees of a company, members of an organization, or residents of a neighborhood. Membership is limited to those who are part of that group.

Disadvantages of credit unions

Okay, so credit unions are warm fuzzy money clubs, but it's not all roses and puppies. You won't find jillions of ATMs all over the country for your banking convenience. They don't have branches on every other corner. Deposits at credit unions are usually insured, but not always. And even those that are may not be to the extent that deposits at FDIC-insured banks are.

They don't usually offer the range of services that big banks do -- you might be treated to a blank stare if you ask about direct deposit or getting your canceled checks returned to you. Credit unions are known for being very conservative in their loan underwriting. Membership may have its privileges, but it won't get you a mortgage or car loan if your credit is skuzzy.

Advantages of credit unions

Credit unions can be sort of like Cheers, where everybody knows your name. Their service is often better than banks -- if you ask your regular bank for recommendations or advice, you might not be told everything you should know, as that's not always in the bank's best interest.

Banks' raison d'etre is to make money for their shareholders and they are supposed to do that in every legal way possible. But credit unions have no reason not to help you as much as they can, because they answer to you! You can open a savings or checking account at many credit unions with a single dollar.

Finally, I have heard but have not verified that credit unions serve better cookies.

How do you choose the best credit union?

If you want to check out a credit union, your first task is discovering which ones you qualify to join. Go to CreditUnionCoop.com to see which ones might accept you and then compare their offerings.

If your money's safety is a primary concern, pick a credit union insured by the federal government through the National Credit Union Administration (NCUA). Most of them are. Look for an NCUA blue sticker on the window or just ask the nice people who work there. The NCUA is to credit unions what the FDIC is to banks. If you've got big bucks, find out what the coverage limits are for each type of account.

Investigate the range of services provided. Note: a limited range of services is not necessarily a bad thing. Some credit unions, tired of being the maiden aunts of the financial world, have revved up their profiles and their advertizing and stepping up the fees to pay for it all. The more provincial organizations often serve up the best deals on plain vanilla products like savings accounts and car loans.

The bottom line is that the services offered should mesh with your needs. Remember, too, that you can always take advantage of your credit union's best CD rates and high-yield savings while maintaining a convenient checking account at Behemoth Bank.

Finally, visit the branch you are most likely to use (not everyone prefers to bank online, I'm just sayin') and check out the cookies.

Gina Pogol has been writing about mortgage and finance since 1994. In addition to a decade in mortgage lending, she has worked as a business credit systems consultant for Experian and as an accountant for Deloitte. She graduated with High Distinction from the University of Nevada with a BS in Financial Management.

Disclaimer: Discover is a paid advertiser of this site.
Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.

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1 Response to “Credit unions - better than you might think” 

  1. Michael Calcutt says:

    Hi Gina,

    Below is my description this past year with my local St. Paul MN Federal Credit Union. There is a difference and I implore you to investigate how safe peoples money is with Credit Unions. Here is my story.

    Affinity Plus Credit Union St. Paul, MN has acknowledged that an unauthorized wire transfer (through the Fed wire system) totaling nearly $89k was sent this past February from my savings account (the actual funds came from my HELOC, but were first transferred into my saving). After five months they concluded their investigation and ruled that they had followed Uniform Commercial Code (UCC) and are not responsible for having sent the two wires. They stated that they followed their internal procedures by asking and confirming the information on the account (this amounted to a SS# and DOB).

    My understanding is that Uniform Commercial Code has very broad guidelines but falls under Reg 4a. It is this regulation that banks must follow and this is where I need to gain a further understanding. I have been unable to find anyone with expertise in this area.

    I would like to explain below how the CU handled this transaction:
    My HELOC account was opened in February 2009. Approximately one year later, my telephone banking system was activated by the perpetrator (this system had never been used in the 7 years of being a member with the CU). Three days later using the telephone banking system, my telephone number on the account was changed. Over the next four days a total of nine (9) transfers of $9,999.00 from my HELOC to my savings account took place. On the first day of fund transfer and again two days later a fax request was sent to the CU requesting the wire transfer of funds to BofA.
    The CU indicated to me that they incorporated the following procedure before wiring the funds:

    -Called the new telephone number on the account.
    -Verified the signature (my signature was copied from a closing document a year earlier by the perpetrator).
    -Verified my SS# and DOB.
    What the CU did not do:
    -Did not notify me that my telephone banking system was activated or that my telephone number was changed two days prior to the wires being sent.
    - They did not consider calling the new telephone number to verify that the new number was valid.
    - On each day of the two wire transfers, they did not consider that numerous phone transfers of $9,999.00 also took place into the savings account (again the telephone banking system was used).
    -Did nothing to consider the unusual telephone number and different name on the top of the two (2) faxes that were sent to them (the fax number next to the name was almost identical to the new telephone number established on the account).
    - Did nothing to realize the signature was an exact cut and paste.
    It is worth noting that I notified the CU within 3 weeks of the wire transfers. With all of the items which they ignored as noted above, there has to be some level of protection for the consumer. I know with banks this issue would be resolved!

    Mike Calcutt
    612.298.0069

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