In recent years, the turbulent banking industry has pushed increasing numbers of consumers toward financial alternatives to the biggest national banks. A taxpayer-funded bailout, new and increasing fees for basic banking products, and a series of industry scandals have left a bad taste in the mouths of many bank customers. Enter credit unions.
Though they’re by no means a new concept (the oldest dates back to 1908), credit unions further penetrated the national consciousness in late 2011 when Bank of America—at the time the largest U.S. bank by asset size—proposed a $5 monthly fee for checking account customers who used a debit card to make purchases. In response, a grassroots event known as “Bank Transfer Day” made national headlines and urged consumers to leave big banks for smaller, community-focused credit unions. BofA ultimately repealed the $5 fee, but the event is a sign of tension between the bank and its customers.
In addition, the message set by such an event warrants a look at the advantages of a credit union over the four big banks: Chase, Wells Fargo, Citibank, and BofA. Advocates will proclaim banks are for-profit and serve stockholders, while credit unions are not-for-profit and serve members. They’ll also note many banks have a nationwide or even international focus, whereas credit unions set their sights on improving their local community. All of that is true, but are there quantifiable benefits for individual consumers who are considering switching to a credit union?
Over the last year, NerdWallet.com has conducted extensive analysis in various facets of banking—pitting credit unions vs. banks. The results show that, when it comes to many basic services, credit unions outperform the biggest banks.
Checking accounts. According to the Federal Reserve’s Survey of Consumer Finances, 90 percent of families in 2010 held some assets in a checking account, making it the most-common deposit option. These accounts are also of critical importance because of their primary use: depositing income, paying bills, and making regular purchases. Because of their necessity and frequent transaction activity, the potential for slip-ups—and subsequent fees—with a checking account are high.
Since the July 2010 enactment of the Dodd-Frank Wall Street Reform & Consumer Protection Act, big banks have been making significant changes to their checking account offerings and fee schedules. To make up for increased regulatory costs and the newly limited ability to charge certain fees, such as overdrafts, most eliminated free checking accounts. This meant customers now had to meet a minimum balance or other requirements in order to waive a monthly fee.
What about credit unions? Most have been able to maintain a truly free checking account. Among the top 10 banks and credit unions in the United States, 70 percent of credit unions offered a free checking account to members, compared to just one of the top 10 banks (PNC). That’s an average savings of more than $100 per year for consumers who might not meet the requirements to waive a monthly fee. Furthermore, many credit unions pay dividends on checking balances—something that’s usually only found with high-fee premium checking at the big banks.
Savings accounts and CDs. For consumers with some extra funds, credit unions can also offer higher deposit rates than their bank counterparts. The big banks are currently offering effectively no interest on a basic savings account and under 0.75 percent APY for a 5-year CD. By comparison, NerdWallet found that credit unions average more than 0.15 percent for savings accounts and 1.42 percent for a 5-year CD—nearly double what’s offered by Bank of America and its peers). As consumers struggle to keep up with inflation, every bit of extra yield counts.
Branches and ATMs. A common concern among bank customers considering a switch to a credit union is they’ll face limited access to branches and ATMs. What they don’t know is credit unions often address these concerns. Many are members of a CU Service Center network, which allows members to perform transactions at any credit union within the network. That means members have access to nearly 5,000 branches nationwide, which is just under Wells Fargo’s 6,300, as well as Chase and BofA’s 5,700.
Credit unions actually outperform the big banks when it comes to self-service access to your money. They are often part of a surcharge-free ATM network, meaning members are not limited to just their own institution’s machines as with a bank. The largest of these networks include more than 30,000 ATMs. At Chase or any other bank, you’ll be limited to fewer than 20,000.
They may be smaller than the big banks, but credit unions can operate like a much larger institution and also offer higher-quality financial products for their members. As the anniversary of Bank Transfer Day approaches, don’t ignore your local credit union as a viable option for your banking business. Lower fees and higher deposit yields are likely worth a switch.
John Gower is an analyst at NerdWallet, a website dedicated to providing unbiased information on the best savings accounts, checking accounts, credit cards, and more.