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TheStreet Open House

Credit unions vs. banks: Things to consider





One of my money resolutions for 2014 is to switch banks. I've been a long-time customer of a big bank that, in recent years, has stood out among headlines that reveal sneaky and unethical business practices. That's not the only reason I'm switching, but it does help me want to change.

In addition to looking at other banks, I've also been researching credit unions. Some people think credit unions aren't terribly convenient -- maybe they don't have online banking, or maybe it's hard to find an ATM when you're traveling. But I've found that, despite the potential inconveniences, there are advantages to consider when it comes to a credit union. Here are a few things I'm keeping in mind as I make my decision.

INTEREST RATES

The main draw I've often heard about credit unions is they offer lower interest rates on loans and higher interest rates on savings.

Auto loans and mortgage loans

In 2013, financial research company Datatrac analyzed the average interest rate differences between credit unions and banks. When it came to car loans, banks' interest rates were about two percent higher. When it came to mortgages, rates were very similar.

Savings yields

The National Credit Union Administration also regularly analyzes the average rates of credit unions and banks. Their latest data ( June 2013) found that the average "regular savings" rate for a credit union was 0.14 percent. The national average for banks was 0.13 percent.

But when it comes to choosing what works for you, you're probably less interested in average and more interested in best. According to Datatrac, the "bank high" savings rate is 1.06 percent. The credit union high is 3.00 percent, which is awesome, but not necessarily accessible.

For example, I researched the credit unions in my community that I might be approved to join. On the high end, those credit unions offered an APY of 0.25 percent. My current bank offers 0.50 percent, and the bank I'm considering offers 0.85 percent. So while credit unions have the overall reputation of having higher interest rates, I guess it really depends on what's available to you in your community. But with a credit union high of 3 percent APY, it's definitely worth looking into.

If you're getting a car loan, it's probably best to go with a credit union. But I'm not a big fan of car loans in the first place (though I understand people have their reasons), nor do I think I'll need one anytime soon. At this point in my life, I'm only concerned with interest rates when it comes to saving. On average, credit unions have better rates, but I'm not sure I have access to the high rates mentioned on these reports.

FEES

Credit unions are known for having low to no fees on their accounts. And while they may offer free checking and even checking with interest, I've come across a couple of banks that offer the same thing. Many credit unions require no minimum to open; the bank I'm considering doesn't require a minimum deposit either.

What's more, according to a July 2013 article from the Washington Post, credit unions have been hiking up their overdraft fees faster than banks.

"The report shows that banks have held the median overdraft charge at $30 a transaction for the past four years, while credit unions have upped their price from $25 to $28 a transaction in the past two years."

On the other hand, "fees are still lower on average at credit unions as of the first three months of 2013." I'm not planning on using overdraft protection, so this doesn't really affect me, but I thought it worth noting. An article from The Street also confirms the misunderstood stereotype that credit unions = no fees.

"Unfortunately, many who make the switch assume mistakenly that just because they're banking with a credit union, they're not going to be charged fees. The truth is that credit union members are just as vulnerable to fees as bank customers -- a fact that is rarely shared or acknowledged."

Most people with credit unions love them and attest that they don't pay fees. And I'm not saying most banks don't assess ridiculous fees, but it does seem like the whole "no fee" thing with credit unions might be a little overrated. I'm not knocking credit unions; I'm just saying, if I switch, I don't think fees will play a huge part in my decision.

BUSINESS MODEL

Structure

Here's where credit unions win, by far -- the way they're structured.

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