You Need To Join a Credit Union

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You have almost certainly heard the term, “Credit Union,” but many of us don’t understand what Credit Unions actually are, and what great advantages they can offer consumers over traditional financial institutions. So let's start with the basics. A Credit Union is a financial institution which is actually owned by those who join the credit union. The first Credit Union was established in 1908 with the ideas that members would pool their assets and that those same members could then borrow from the pooled assets at more favorable rates than those charged by traditional banks or savings and loan organizations. Some of the terminology you hear from Credit Unions reflects the ownership of its members. “Shares” are savings balances. “Share Drafts” are the term for the checks you write on your credit Union Account.


So why join a Credit Union instead of opening a checking account at the mega-bank down the street? Well, it’s actually a no-brainer when you look at the average rates charged by Credit Unions as opposed to rates charged customers of other financial institutions. Consider these rates in the state of Georgia as of August 2005 as reported by NCUA, the National Credit Union Association. At Georgia Credit Unions, the rate for a 60 month new car loan averaged 5.48%, while the rate for the same kind of loan at a bank averaged 7.39%. The differences on used car loans are even greater. Georgia Credit Unions financed used cars for 48 months for 5.56% while banks charged 8.47% for the same loan. Not each and every lending instrument has such a dramatic difference as do car loans, but Credit Unions offer very competitive rates on first mortgages, lines of credit, and even Credit Cards. Credit Card rates are particularly attractive at Credit Unions, but even more attractive is the fact that Credit Unions generally don’t sell off Credit Card accounts to other lenders who might end up raising card interest rates much higher than the original terms of your card.


There are significant differences in savings rates at Credit Unions, too. Savings interest dollars at Credit Unions are called “dividends,” another reference to the ownership aspect of Credit Union membership. Many Credit Unions offer virtually the same kinds of savings instruments offered by commercial banks. The difference between Credit Unions and commercial banks is, again, in the interest rate paid to consumers. The NCUA statistics for Georgia Credit Unions and Georgia Banks reported that regular savings accounts pay an average interest at a rate of .86%, while Banks pay only .65%. Many banks pay interest on checking accounts, and they actually do tend to pay a higher interest rate on checking accounts than Credit Unions do on Share Draft Accounts. For banks, the rate averages .51%, while Credit Unions tend to pay .42%. But read the fine print. Banks often have far stricter rules and regulations on who may earn interest on checking accounts.  There are minimum balances to maintain, for example, and this practice is not as common with Credit Unions.


Even though Banks and Credit Unions are actually quite close in the rates paid for other savings instruments, the small differences can certainly add up over time. The average interest paid on a 3 month CD is 2.31% at Credit Unions, and 2.20% at banks. On a one-year CD, Credit Unions pay an average of 3.44% while banks pay 3.4%. But when 5 year CDs are considered, the difference is 4.46% at Credit Unions compared to 4.20% at banks. The “bottom line” here is that you, the consumer, need to know how the instruments compare at different financial institutions.  


Sometimes banks actually complain about unfair advantages held by Credit Unions. Yet Credit Union market share is only 6.2% as of year-end 2004! Why is it, then, that banks complain about Credit Unions? Some feel that banks balk at the democratic control and ownership of credit unions. Credit Union officer salaries are almost always lower than banker salaries. In other words, Credit Unions do operate with their customer interests in mind, while banks may be more concerned with over-all profitability of the institution. 


So what are you waiting for? Go out and find yourself a Credit Union!