By JULIE RAINS
Many American consumers love credit unions. According to the 2015 American Consumer Satisfaction Index Finance and Insurance Report, credit unions scored 81 out of 100, ranking number one out of all industries surveyed (including banks, insurers and investment services).
Credit unions are not-for-profit organizations that provide financial services to their members, who join by opening an account. They are owned and controlled by members, and they exist to benefit members.
An important similarity between banks and credit unions is that federal credit unions are insured by the National Credit Union Share Insurance Fund, which works like FDIC insurance provided to bank customers.
A credit union may not be a great fit for everyone, but here are some reasons why they consistently get such high consumer satisfaction ratings.
1. No fees on checking accounts
You may not need to make a large deposit or keep a lot of money at a credit union in order to avoid fees on checking accounts. Shelley Carlson, vice president of marketing and public relations for Texas Trust Credit Union in Arlington, Texas, says, "many credit unions still offer a free checking account option."
For example, Affinity Federal Credit Union offers a checking account with no debit card fees and no minimum balance requirements.
In contrast, some banks may require you to keep a minimum balance of $1,500 or more or make a certain number of monthly transactions to get account-maintenance fees waived.
2. Lower-cost credit-building products
According to John Fenton, president and chief executive officer of Affinity Federal Credit Union in Basking Ridge, New Jersey, "It's generally more common for credit unions and community banks to offer credit-building loans than larger banks.
For example, Affinity offers a secured credit card with a 10.85 percent variable APR and no annual fee. It requires a minimum deposit of $250 in an Affinity savings account; the balance in this account determines your credit limit.
At a traditional bank, a secured card may carry an APR of 19 percent or higher and an annual fee of $25 or more.
Some credit unions offer credit-building loans that are secured by a savings account or certificate of deposit (CD). By making timely payments on the loan, you can build your credit history.
To get started with a secured card or loan, you may need to open a savings account and make a deposit (or put money into a CD), which serves as the collateral for your loan.
If you fail to make on-time payments, your lender may take possession of collateral to cover its losses.
3. Free use of many ATMs
Many credit unions belong to the CO-OP network, which provides member institutions with access to nearly 30,000 surcharge-free ATMs. These ATMs are located throughout the U.S. as well as some foreign countries, such as Italy and Japan.
If you're a member of a participating credit union, you may be able to use these ATMs at no charge. Find surcharge-free ATMs associated with the CO-OP network using its ATM locator.
If your credit union isn't part of this network, ask about the availability of fee-free ATMs at a branch office or check for locations using its website.
4. Higher interest rates on deposits
You may be able to earn more interest on your deposits at a credit union compared to a bank. Fenton says this is because a credit unions are nonprofit and can offer higher interest rates on savings accounts and certificates of deposits (CDs).
According to an interest rate comparison conducted by the National Credit Union Administration (NCUA), as of June 2016, the national average rates offered by credit unions exceeded that of banks for regular savings accounts, interest checking accounts, money market accounts and CDs.
The biggest difference was among CDs. For example, the average rate of a five-year CD (with a $10,000 minimum) was 1.51 percent at credit unions compared to 1.22 percent at banks.
5. Lower interest rates on car loans
NCUA's interest rate comparison indicated that interest rates for car loans may be lower at credit unions. For example, as of June 2016, the average rate on a 60-month new-car loan at credit unions was 2.72 percent, compared to 4.69 percent at traditional banks.
6. Fee-free health savings accounts (HSAs)
Some credit unions also offer fee-free health savings accounts. For example, Alliant Credit Union lists a health savings account (HSA) with no account maintenance or transaction fees and no minimum balance requirements. HSA monthly maintenance fees at a traditional bank may cost $4 per month or more.
7. Free financial literacy services
"If you're looking to learn about budgeting, saving, improving your credit and other money matters, credit unions typically have a financial literacy team that offers workshops or one-on-one training," says Carlson. Often, these programs are free.
For example, Affinity provides free credit counseling services through agencies that are certified by the National Foundation for Credit Counseling. Allegacy Federal Credit Union offers free workshops and webinars on topics such as estate planning and homebuying.
Potential drawbacks of credit unions
1. Restricted membership
You must meet membership qualifications to join a credit union. These may include working for a certain employer or living in a certain area.
Toby Hayes, vice president of marketing at SAFE Federal Credit Union in Sumter, South Carolina, says "Membership criteria is determined by a credit union's charter and can vary between credit unions. Community-chartered credit unions are typically open to anyone who lives, works or worships within a specified geographic area."
2. Limited services
Credit unions may not offer all the services you need and want. For example, my credit union doesn't exchange foreign currency for members. When I needed cash for an overseas trip last year, I turned to one of the major national banks to exchange dollars for euros.
3. No-frills products
A large, traditional bank may have programs that benefit customers with large account balances. For example, Bank of America offers tiered rewards to customers based on combined account balances. Eligible customers with combined balances of $50,000 or more may qualify for free ATM and investment transactions and other bonuses.
Similarly, some credit cards issued by credit unions may have lower APRs than banks but don't offer rewards.
4. Fewer branches
Credit unions may not have as many branches as traditional banks because they often serve a limited geographic area.
While online and mobile banking services may allow you to access your credit union account easily, you may prefer the convenience of a traditional bank with thousands of branches all over the U.S.
Credit unions may be an excellent choice for cost-conscious consumers.
Consider reviewing fees, product offerings, and other factors you care about before making a decision about whether you'll join a credit union or do business with a traditional bank.
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