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Credit Unions Take on Big Banks

For most consumers, credit unions get the job done, with higher rates, lower fees and fewer risks.

It's been one of the worst years on record for the financial-services industry -- the

financial group

of the S&P 500 has plunged 28%. Big banks are buying back bad debt, as in

Bank of America

's recent deal with Massachusetts. As a result, many banks are hiking fees to make up for billions of dollars in losses. Credit unions, having escaped the financial crisis, are chipping away at their larger rivals' customer base. They offer what most consumers need: good rates, low risks and personal service.

If you are considering switching to a credit union, here are a few things to keep in mind.

Membership criteria

Credit unions have restricted membership, meaning you can join only if you meet their criteria, which typically includes one or more of the following: working for a particular company, living in a designated town or county, or belonging to a specific organization.

To find a credit union near you, visit the

Credit Union Coop

. You can also search the database of insured credit unions on the

National Credit Union Administration

TheStreet Recommends

's Web site. (The NCUA is the independent agency that charters and supervises federal credit unions. It insures credit union deposits up to $100,000, much the same way the FDIC insures bank deposits.)

Once you find a few credit unions near you, check their membership criteria. Account minimums sometimes are only $1.

Not-for-profit status

Since a credit union is owned by its members and run as a nonprofit, you don't have to worry about third-party interests. (At publicly traded banks, for example, those third parties are often shareholders looking for big returns.) While you still run the risk of dealing with a lousy loan officer -- just like any business, credit unions aren't immune to staff problems -- credit unions have fewer incentives to shoehorn consumers into inappropriate loans. As a result, you're more likely to have a frank discussion about the advantages and disadvantages of a particular loan than at a bank that needs to watch its bottom line.

Interest rates

With lower overhead and no profit incentive, credit unions generally offer more competitive rates. The average rates for certificates of deposits (CDs) offered by credit unions were about 30 basis points higher than those of banks (a basis point is one-hundredth of a percentage point), based on June 2008 data from the NCUA. At the end of a four-year CD, the 3.61% rate offered by a credit union would earn you $1,524 on a $10,000 investment. The banks' rate of 3.31% would give you $1,391.

Fewer services

Although credit unions are increasing the number of member services, you'll likely have fewer options than at a big bank. Similarly, your local credit union may have fewer ATMs or branches. If you use ATMs while you travel, think about choosing a credit union that belongs to the

Coop network

to avoid surcharges.

Competitive advantages

Not all credit unions are created equal. Some bigger ones resemble banks, with higher fees and less competitive rates. You may also want to split your banking to benefit from better rates at a credit union and a wider array of services at a bank.

Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.