NEW YORK (MainStreet) — Does free checking matter to you when you choose a bank? Because increasingly, big banks just aren't offering free checking accounts. Credit unions offer them at twice the rate — that is, 72% of U.S. credit unions offer free checking accounts, compared with 38% of big banks, Bankrate.com says.
Additionally, 26% of credit unions (for a total of 98%) offer free checking if certain account benchmarks are met.
It's not all about free checking. Bankrate says most credit unions don't have a minimum opening deposit requirement, and the average overdraft fee at smaller financial institutions is about $6 less than at large banks.
"When evaluating checking accounts, consumers should definitely include credit unions in their search," says Greg McBride, chief financial analyst at Bankrate. "They have competitive offerings and many participate in large ATM networks that extend the credit union's reach."
The biggest difference between a bank and credit union is the business objective, says Casey Bond, editorial director at GoBankingRates.com. "Banks are, in fact, businesses. Their main objective is to generate revenue and grow profits. Credit unions, on the other hand, exist to serve the financial needs of a particular group of people and are not-for-profit cooperatives," Bond says. "Credit unions also need to turn a profit to keep operating, but the key difference is that money is returned back to members rather than executives and shareholders."
"Consequently, credit unions can afford to provide better interest rates overall," she adds.
Data from the National Credit Union Administration back that up, showing credit unions outperforming big banks in key areas such as rates for certificates of deposit, money markets, checking accounts, credit card interest and mortgages.
You don't have to tell Lou Panacciulli.
Panacciulli, a vice president at the Nassau Pops Symphony Orchestra in Franklin Square, New York, is a 20-year member of NEFCU, a Long Island area credit union. "The rates at NEFCU for car loans, mortgages and lines of credit are lower than commercial banks," he says. "Free checking is a plus and my bank account offers better interest rates than multi-year CDs, which can tie up your liquidity."
"The fact that NEFCU is a local credit union gives me another advantage," Panacciulli says. "National and international commercial banks are, of course, large corporations whose main responsibility is to their shareholders. With a credit union, I am a member, not just a customer."
Of course, credit union users might lack the more thorough branch and ATM access of banks, and bigger banks may offer more comprehensive online and mobile services. But if it's better rates and more one-on-one customer service you're seeking, smaller financial institutions make a strong case.
— Written by Brian O'Connell for MainStreet