In an effort to continue to bring you valuable insights, this month’s guest post is from Ted Goldwyn, who is a great resource for questions related to banking, credit unions and financial services.
Ted Goldwyn is the founder of Ted Goldwyn Writing, a marketing and communications firm based in Corning, New York that specializes in thought leadership and content marketing for the financial services industry. Ted has been published in numerous industry journals including Credit Union Magazine and CreditUnions.com. Prior to starting his writing career, Ted spent nearly two decades in various financial services executive roles including Director of Business Services at Corning Credit Union, and Vice President, Product Manager for Small Business Services at The Bank of New York. Ted holds a B.S. from Cornell University, and an M.B.A. in Finance and International Business from New York University’s Stern School of Business. Ted may be contacted at ted@tedgoldwyn.com and at www.tedgoldwyn.com.
Despite boasting over 100 million members in the U.S., credit unions are often neglected in today’s crowded financial services market. Many consumers don’t consider joining a credit union when it comes time to open a new checking account or apply for a loan. Others assume they don’t qualify for membership or are wary of a credit union’s perceived limitations.
It’s a good time to take another look at credit unions. They are evolving in many ways and may be a great fit for your financial needs.
A history of serving the underserved
Credit unions were created over 100 years ago to provide underserved populations with basic financial services like savings accounts and personal loans. These populations included manufacturing workers and other close-knit employee groups, many of which pooled their modest savings to start their own member-owned cooperatives.
Today, credit unions are both growing in asset size and falling in number. According to the latest data from the National Credit Union Administration (NCUA), there are 5,335 federally-insured credit unions in the country, a sharp decline from the industry’s 1969 peak of 23,866. At the same time, today’s average credit union holds $283 million in assets, and a record 315 institutions are considered “large,” with over $1 billion in assets each.
As the industry has changed, credit unions have expanded their membership eligibility, providing consumers with new opportunities to join. In addition, it is more likely that your hometown credit union now offers many of the same convenient services as community and regional banks.
How are credit unions different?
As non-profit, member-owned cooperatives, credit unions are generally not subject to corporate income tax. This allows them to pass savings on to their member-owners in the form of higher deposit interest rates (called share dividends in credit union parlance), lower loan rates, and lower fees.
Despite their growth in recent decades, credit unions still tend to be smaller than banks. For example, the largest credit union in the country, Navy Fed, currently holds $103 billion in assets. That is pretty big! But you can fit 26 Navy Feds inside one JPMorgan Chase, which has assets of $2.7 trillion. In fact, each of the top four U.S. banks is larger in asset size than the entire credit union industry!
Because of credit unions’ membership structure, each accountholder has voting rights, allowing them to participate in the annual election of an all-volunteer board that represents the members’ interests.
Membership is restricted to individuals that share a “common bond.” These can be employees of one or more organizations, members of a non-profit organization, immediate family of current members, members of a religious or educational organization, or individuals who live, work, do business in or attend school within a defined geographic area.
In contrast with credit unions, most banks are for-profit, shareholder-owned corporations. They are subject to income tax, and are larger than credit unions, with average assets of $3.4 billion. Most importantly, management’s incentives are aligned closely with the interests of the bank’s shareholders, rather than their customers.
Credit unions offer significant benefits
So, why should you consider moving your relationship from a bank to a credit union? Here are a few reasons:
· Better rates and fees: For one, credit unions’ tax-exempt structure and emphasis on returning value to their member-owners means they generally offer higher deposit rates. For example, according to a quarterly analysis provided by the NCUA and S&P Global Market Intelligence, as of June 28, 2019 credit unions averaged 5-year CD rates of 2.38%, vs. just 1.87% for banks. Similarly, the credit union average money market rate was 0.37% vs. 0.26% for banks.
On the loan side, the average rate for credit union 5-year home equity loans was 4.88%, as compared with banks’ 5.39%, and the average 60-month new auto loan rate was 3.69% vs. 5.22% — a whopping 153 basis points less!
In addition, fees for common banking services like checking overdrafts, Fed wires, and ATM withdrawals are generally lower at credit unions.
· A focus on the member: Cooperatives have also long held a reputation for better customer service, and at many credit unions this still rings true. However, a 2018 ACSI benchmark study showed customer satisfaction ratings have slipped at credit unions in recent years, as banks’ have risen, and they are now on par.
· Community connections: Due to their strong community connections and bettering their members’ financial lives, the credit union movement has taken the lead in consumer financial education. Many individual credit unions around the country offer customized financial education programs in partnership with local schools and social service agencies. The NCUA also maintains an informative financial education and awareness site at www.mycreditunion.gov.
Despite these advantages, a credit union may not be the best choice for your particular needs.
Because of their smaller size, the typical credit union has fewer physical branches and ATMS, potentially restricting access to your money. However, some credit unions now offer innovative checking accounts that reimburse monthly bank ATM service fees if certain minimum criteria are met. This allows you to use any ATM across the country as your personal branch!
Traditionally, credit unions have offered fewer products and services, and were less technologically advanced. This has changed in recent years, as digital banking access is now considered table stakes. Before you decide to join a credit union, familiarize yourself with its services to ensure it offers everything you need.
Lastly, member eligibility remains a barrier to entry for some. For decades, opening a credit union account was like joining an exclusive club. Today, it’s far easier to join a cooperative, due to the growth in community charters allowing access to anyone who lives, works, attends school, or belongs to a religious organization within a defined geographic area.
Credit unions are an often-overlooked alternative to the big national banks. They offer better rates and fees, provide great service, and care about their members and the communities they serve. It’s worth taking a fresh look at the cooperative option.
