Back on December 22, I went on “Mad Money” and said that banks that benefited from the $750 billion federal bailout should step out of hiding and “show me the money.”
I was plenty ticked off that banks took the TARP money and clammed up about how they were using it.
It’s a column idea for another time, but I do have some specific ideas on what steps they must take if they are going to receive taxpayer money—an issue that Congress is expected to pick up soon after President-elect Obama takes office next week. To set that table, I can tell you that Larry Summers, the Economic Council Chair designee, will be draconian-like in his stance on what banks can do for their shareholders if they grab some of that low-hanging TARP fruit—that is, until Congress has its say. I'm hearing that an Obama White House will redirect that money—about $350 billion—toward a new end: Actually keeping potential foreclosure victims in their own homes.
But the issue that has me thinking about banks this week is whether consumers can get a better deal in a bank or a credit union. Banks seem to have an institutional arrogance when it comes to their customers, and it doesn’t end with how they’re using (or not using) the trillions of dollars they’ve received from Washington—and by extension, their own customers.
But are credit unions a better deal than banks? Let’s see for ourselves.
What are credit unions?
According to the Credit Union National Association, credit unions were founded in 1844 by a group of weavers in Rochdale, England. The group created the Rochdale Society of Equitable Pioneers, “selling shares to members to raise the capital necessary to buy goods at lower than retail prices, and then sold the goods at a savings to members.” That community spirit pretty much defines credit unions, which continue to be . . .
• Member-owned, rather than viewed as a customer, or “cost center” by a bank.
• Non-profit, so more energy and financial resources go into creating, for example, lower interest rates for members, rather than slapping them with onerous fees and charges.
• Exempt from most state and federal taxes. Again, that frees up more cash to provide members with better savings and lending rates.
• Insured and backed, just as banks are, by the full faith and credit of the US. Government (through the National Credit Union Administration, a government agency). According to CUNA, the NCUA has never had to use taxpayer money for bailout purposes.
On the negative side, credit unions aren’t as pervasive as your big megabank, so the inconvenience factor is higher than I like. So running down to the ATM or across town to the teller window may take a little longer for credit union customers with fewer branches and cash machines to choose from. In addition, big banks have poured tons of resources into online services, giving customers more home banking options via their personal computers than with most credit unions.
Still, I like the fact that credit unions are focused more on customer service and on producing better rates for customers, as opposed to banks, who seem rigidly fixated on making fees a profit center and are increasingly resistant to providing credit for customers. I also like the fact credit union members actually have a voice in how the institution is run. Try that with a bank, where a small group of investors make decisions on what’s good for them, and not for the customer. In a credit union, any profit is plowed back toward members in the form of higher dividends, lower interest rates, and lower service charges. And you know how I feel about stronger dividends, better rates, and superior customer service.
But if you want to join a credit union, do your homework first.
That means talking to your employer and seeing if it is involved with a good credit union (many companies, especially larger ones, actually sponsor credit unions). Or ask your family or neighbors for recommendations. You can also use the CUNA credit union locator.
I’d also advise a full review of credit union interest rates, especially compared to traditional bank interest rates, to see what kind of break you might get by joining a credit union. Our bank and mortgage web site, BankingMyWay.com, has a great way to check CD, money market, mortgage and home equity interest rates (among others) for credit unions near you. All you have to do is pop in your zip code and you're on your way.
I encourage you to use the site. BankingMyWay is comprehensive as all get out, surveying way more banks and credit unions than the other guys out there, including some of those ballyhooed sites that over-promise and under-deliver.
I know, I'm really worked up here. But I’m ticked off at banks these days. Even so, as a consumer I’ll take the best deal out there.
And why not? In a tough economy where Americans are throwing nickels around like manhole covers, some of your best savings and lending deals could well come from a credit union.
—Brian O’Connell contributed to this article.