Is a Credit Union Better Than a Bank?

Basics Feb 12, 2021

In the saga of avoiding patronage of for-profit companies, I started out with a local credit union. Their advantages over banks suit my lifestyle well. Banks of course have their niche, but I vastly prefer my credit union. What differences are there between the two?

Credit unions are a form of cooperative that provides financial services, such as banking and lending. I'm a huge fan of co-ops as they're often operating for the benefit of members rather than profiteering.

In our household we avoid for-profits under the assumption that greed drives them. As such we use customer-owned Vanguard for our brokerage, and credit unions for our credit cards, checking accounts, and mortgage.

One of the most obvious benefits of a credit union is its generous interest rates – low for loans, and relatively high for savings like money market accounts and certificates of deposit. Though don't expect savings interest to compete with stocks – right now it's normal to be a single percent interest at most. Better than what most banks offer, but still a pittance.

The other big benefit is better customer service from credit unions. As they operate cooperatively, credit union employees serve their members to the best of their abilities. I've always been impressed with associates that go above and beyond on my behalf, and they have been understanding ever since beginning with them in my teenage years.

One of the listed downsides of credit unions is that they may restrict membership on some basis. For instance the largest credit union by assets, Navy Federal, caters to service members and their families. However in modern times there are plenty of credit unions with public membership, or trivial hoops to join them. Mine is one such public credit union.

Both mine and my dearheart's credit unions are on the top 50 list of credit unions by size of assets under management, which means they're fairly portable and up-to-date. I recommend that when searching for a credit union, you pay attention to its scale. Many credit unions are part of a network of shared branches and ATMs, so even small credit unions allow you to travel and still function.

That said, larger credit unions are better able to stay up on top of tech, much like banks. If you prefer the convenience of apps and decent online portals this is another area to investigate. I'm pleased with my credit union in this regard, because it has always sent me email summaries whenever there are transactions on one of my accounts. It helps me track my cashflow purchase by purchase.

I almost exclusively use the credit union's online portal for all my activities, such as transferring money between accounts through ACH or member-to-member transfers for our joint account. One of the rare times I could not do it online was when I wired the down payment for my house. This online-primary service is perfectly suited for a technologically literate introvert like myself!

This online portal also has been helpful for providing financial literacy: there are countless knowledgebase articles that I've run across over the years. Especially when I was young and just starting on the path of understanding finances, these were a crucial source material. Credit unions often provide resources to promote financial literacy, since it's in the interest of their members to do so.

That said, my credit union often promotes "deals" with loans – car loans, boat loans, personal loans, and so on. The credit union still needs to generate profit, after all, but their rates are generous compared to banks. It's just a little unsettling that they promote debt for depreciating assets.

Though to be fair, my credit union also offers promotional certificates of deposit from time to time – with exceptional interest rates. I picked one such CD up at a rate that just barely beat out inflation – a great safe investment.

Speaking of safety, banks and credit unions are about equally safe places to store your cash. They're insured for up to $250k in case things go wrong. The key to look for is the NCUA notice for credit unions, and FDIC for banks. The federal government will back you up in the event of disaster, such as credit unions folding.

By now you should be picking up on my definite bias towards credit unions. Their cooperative nature is such a philosophically important attribute for me. I have many qualms about the financial sector and capitalism, and I love any alternatives to greedy corporations that I can find.

So yes, I believe credit unions are better than banks. Most of their differences from banks are less relevant in contemporary times, as credit unions grow more prevalent. They're able to compete with banks, instead of being simply inconvenient niche alternatives.

There's also no reason why you cannot choose to have both, if it should so suit you.

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Mistress

Mistress of the Home, responsible for all matters financial. A loving Domme tempered with ambition and attention to detail.

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