Over the past six months, many banking customers have faced new debit card fees, and then the cancellation of those fees. (Other fees, for using out-of-network ATMs or bouncing checks, still exist.) The confusion led to many unhappy customers, some of whom are asking whether credit unions would be a better choice for them. According to the Credit Union National Association, more than one million customers decided to move their money to credit unions in 2011, joining the 90 million existing customers.
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Credit unions, which, unlike banks, are owned and governed by their members, are often misunderstood as exclusive places with limited services. But in reality, most Americans are eligible to join them and they provide an increasingly diverse array of services, including free ATM use, electronic banking, loans, and interest-bearing savings accounts.
Here are answers to five common questions about credit unions:
Am I eligible to join a credit union?
While membership in a credit union depends on belonging to a particular community, such as a workplace, region, or church, most consumers are eligible, even though many don't realize it. They might just need to investigate options within their communities.
So how do you find one? Websites such mycreditunion.gov can help. Also, ask around—your employer, spouse's employer, or local government council can direct you as well.
Do credit unions offer better interest rates?
On average, credit unions offer lower rates on loans and higher rates on savings accounts—just what consumers want. The National Credit Union Administration (NCUA) reports that five-year loans for new cars at banks have an average interest rate of 5.1 percent, compared with 3.73 percent for credit unions. Many credit unions also have limits on interest rates. Federally charted credit unions, for example, have an 18 percent limit that applies to all loans, including those for cars and credit cards.
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Are deposits insured the same way they are at banks?
Yes. Credit unions are insured by the federal National Credit Union Administration, which provides the same protections that the FDIC applies to banks—insurance coverage on deposits up to $250,000. NCUA's website allows credit union members to check on their insurance coverage; the agency also recommends checking for a prominently displayed sign at the credit union that says it is NCUA-insured.
Do credit unions ever collapse?
Like banks, credit unions can fold, but that usually means they merge with another credit union. Regardless of what happens, members are protected through the NCUA insurance. NCUA says if a federally insured credit union fails, members typically receive payments for their deposits within three days.
What about financial literacy—can a credit union teach me how to make smart money decisions?
Credit unions pride themselves on being a top source for financial information. Many offer seminars and information on topics such as preventing identity theft and managing credit cards. More information on any of these topics can be found at the NCUA website or by contacting your local credit union.