The Joys of Credit Unions

I've made no secret of this in the past: I love my credit union. Their great rates, low fees, friendly personal service, and flexibility in meeting my needs have made me a customer for life. While credit unions aren't the best fit for everyone, they do offer distinct advantages -- tangible and not-so-tangible -- over big regional or national banks.

The basics
Credit unions are nonprofit companies that, at their most essential level, consist of members who have pooled their money in order to make loans to one another. In practice, they are (generally smallish) bank-like companies that offer most of the same consumer services that banks do. These services include savings and checking accounts, credit cards, mortgages, auto loans, and personal loans. Like banks, deposits are generally insured up to $100,000. Some credit unions also offer business loans and retirement products to small businesses owned by members, and others may have brokerage or insurance affiliates that offer products and services to members as well.

All that said, credit unions differ from banks in a couple of big ways, mainly in terms of attitude and approach. When you walk into a Bank of America (NYSE: BAC) or Wells Fargo (NYSE: WFC) branch, you're a customer. The bank looks at you as someone it needs to satisfy, but also as an opportunity for profit. The level of service you get will depend in part on how profitable the bank thinks you'll be for them, and you may find the bank becoming your adversary from time to time -- especially after you take an hour or two to add up all the fees you've been charged.

Membership has its privileges
With a credit union, on the other hand, you're a member. That may not sound like a big deal, but in practice it can be a huge difference. The credit union -- which is a nonprofit, remember -- is there to provide service to its members. That doesn't mean they'll give you a crazy-huge no-down-payment mortgage without blinking an eye (that wouldn't serve their other members very well), but it does mean they'll consider much more of your overall financial picture when deciding whether -- and how -- to lend you money.

Incidentally, it's worth noting that a credit union is a pretty good place to go for a mortgage right now. Because most (though not all) credit unions self-finance their loans, rather than turning them into securities and selling them off, they've largely escaped the effects of the subprime crunch in the mortgage securities market. And while credit unions don't generally make very many subprime or "Alt-A" no-documentation mortgages, their lending standards have always been a bit more flexible than most other institutions, especially when lending to lower-income members with good credit.

And, in general, a credit union should be an early stop when you're shopping for any type of loan, whether it's a low-interest Visa card or a good deal on an auto loan. Their nonprofit status means that rates are often significantly lower than major banks', and once again, underwriting flexibility can work to your advantage if you're trying to do something a little unusual, like buying an antique car or boat. Many credit unions also go to considerable lengths to point out that their fees are lower than banks', and often compensate for their disadvantages of scale by, for instance, refunding the fees paid by members to use out-of-network ATMs.

The upshot
Credit unions may not suit everyone's needs. If you own a sizable business and want one-stop banking, for example, your local credit unions may not be able to offer you the full range of services you need. But if you're looking for a friendlier face to go with your personal banking experience, along with lower fees and a more service-oriented approach, check out the Credit Union National Association's credit union finder to see what's available in your area.

Not all credit unions are open to everybody -- the law requires that membership be based on some common association or status, called a "field of membership" and defined in the credit union's charter -- but there's sure to be at least one or two in your area that would be pleased to have you as a member. Check out the CUNA's site for more specifics, or just walk into your neighborhood branch and ask -- they'll be happy to help you out.

© 2007 Universal Press Syndicate