Almost 92 million consumers do their banking through credit unions’ 21,000 branches. While a typical bank has 15 times more assets than a typical credit union, the member-owned credit unions are able to offer consumers the same retail services at typically better prices. Credit unions don’t compete for investment banking business, so they avoid those risks and costs. They also plow all of their profits back to its members – its customers.
Many credit unions belong to a shared branch network, enabling members to perform banking transactions at thousands of offices of the other credit unions. Credit unions usually charge about $1 less than banks do for using “out of network” ATMs and 65% of them offer free checking. Sophisticated online banking is commonly offered, even by small credit unions.
Deposits in nearly all U.S. credit unions are federally insured. As of December 2010, 98% of credit unions (holding 99% of credit unions assets) were insured by the National Credit Union Share Insurance Fund (NCUSIF) – administered by the National Credit Union Administration. NCUSIF and the FDIC are both federally insured institutions are backed by the full faith and credit of the U.S. Government. The few U.S. credit unions that are not federally insured are covered by alternate deposit insurance arrangements. Credit unions loan practice has been careful and recently they experienced a far lower rate of non-performing loans than banks have.
Data shows that credit unions typically charge less for loans than do banks, e.g.; credit cards at 1% point less and unsecured personal loans at 2% points less than banks charge. Conversely, credit unions pay more for deposits; a quarter point more on CDs, a third point more on money market accounts, and an eighth point more on regular savings than banks pay.
In the recent recession (December 2007 to June 2009), credit union loans to consumers rose 6% and business loans rose 51%. In contrast, bank loans to consumers declined -7% and loans to business dropped -6% over the same period. The average business loan from a credit union is just $254,000, similar to a residential mortgage. Low rates help explain why small businesses have been flocking to credit unions for loans. But loans to businesses are capped at 12.25% of a credit union’s assets so the bulk of assets remain devoted to consumer needs.
Data from the Credit Union National Association notes that, compared with banks, credit unions produce a consumer benefit that totals $80/year from lower loan rates and fees, and the higher interest paid on deposits. Since the services are the same and deposit insurance absorbs the risk for both banks and credit unions, the $80 is persuasive.
Alan Daley is a retired businessman living in Florida. He follows policy issues from the consumer’s perspective