Which Are Better: Credit Unions or Big Banks?

Joel Anderson  |

a Lions fan (God help me) since I was seven, and Barry Sanders (hallowed be his name) was a rookie. My family is another. They’ve always been there, if for no other reason than it’s basically a legal requirement, and I’m pretty lucky in that regard.

But almost everything else?

I don’t live in the house I grew up in anymore and it has since been remodeled. I moved out of my home town at 18 and then home state at 22. I have more than doubled in size since that point and grown hair pretty much everywhere on my body save the top of my head, where I watched my receding hairline turn into full-on baldness by the time I was 25.

No, pretty much everything about my life has changed over the last 20 years. Oh, except my bank.

When I turned 12, my parents decided it was time for me to get a bank account. They trotted me down to a nearby credit union and helped me set up a savings account. Since then I’ve never looked back.

Loyalty without the Rewards Points

That sort of loyalty to a bank seems pretty odd in this day and age. And it is definitely loyalty. Living in Los Angeles means that there’s some distinct inconveniences to conducting banking from Michigan, but I have never seriously considered making the change.

Some of you, at this point, may be thinking “WHY?!?!” and “this is a lot of personal sharing and I’m not sure how comfortable I am with that.” Both are valid points, but we’ll stick to the first one. So what are the pros and cons of a credit union account as opposed to your standard commercial bank?

My Bank Has No Incentive to Steal From Me, Which is Nice

Simply put, I like the idea that my bank isn’t trying to screw me out of my money. Credit unions are owned collectively by their members, which means that there simply isn’t any incentive to find ways to gouge me for profit. I can count on a fair shake.

Further still, credit unions have fewer and smaller fees across the board. Monthly maintenance fees, overdraft fees, all those fees that seem like they’re made up just to bilk customers, are nowhere to be found at a regional credit union. All told, I’m paying out a lot less than your standard big bank customer. Not to mention, interest rates for credit cards are significantly lower, as are the rates on any loan I might take out.

Speaking of interest rates, I get paid one: My savings account is actually paying out. Granted, it’s small enough that I don’t really make use of it, but it is there. Good luck finding a commercial bank that does that for you.

What’s more, the money I’m paying is helping fund the bank itself, which makes it a lot easier to swallow. My fees aren’t a part of an organized strategy to take my money – a strategy that the bank’s very organizational structure is designed to do.

To be fair, that’s a double-edged sword. The incentive to screw me out of my hard-earned money is the very same incentive that drives commercial banks to offer rewards and incentives for membership. Even at a commercial bank, you can count on a relatively fair shake because that bank is competing for customers. Screw too many people too hard and you may find them taking their money elsewhere and reducing your bottom line.

Credit unions mostly have a “take me or leave me” approach that can mean a savvy shopper can potentially squeeze a lot more out of their account by taking advantage of the competitive nature of commercial banking. Credit cards through a credit union will have a lower APR, but rewards offers tend to top out at about 1.5% cash back. Commercial credits cards, meanwhile, can get as high as 6%. If you’re diligent about paying your bills on time and never getting an overdraft fee, you can squeeze more out of your account than would be available with you credit union account.

I mean, that’s the free market, folks. It can work wonders. Of course, if you’ll remember, the free market can also work horrors.

Glass-Steagall is TOTALLY Retro

One sub-set of credit unions being nonprofit is that they don’t engage in investment banking. Admittedly, this was not something that I had put any real thought into for the first fifteen or so years that I had my credit union account. Then, all of a sudden in 2009, Glass-Steagall became more than a trivia answer I pulled out at parties (it should be noted that I did not get invited to a lot of parties back then).

For those of you who don’t remember 10th grade history as well, the Glass-Steagall legislation was a part of the banking act of 1933 that mandated that commercial banks could not engage in investment banking. Basically, one of the reasons the stock market crash of 1929 progressed into the Great Depression was because people’s banks had essentially been playing the markets with the money from their savings accounts. So, when the market crashed, everyone’s banks collapsed along with it.

The conclusion? You can either assume risk to try and generate returns or maintain people’s savings and checking accounts or do some small-business and personal loans – but never the twain shall meet.

Of course, the success of this rule was forgotten over some 60 years, politicians rolled it back in the 1990s in hopes of generating economic growth (it worked), and they were rudely reminded why it existed in the first place when massive banks like Citigroup (C) , Bank of America (BAC) , JPMorgan Chase (JPM) and several others lost massive sums of money in the sub-prime mortgage market and, once again, placed the money with which people had entrusted them at risk. Fortunately, the federal government acted to avoid complete disaster this time, but the massive bailout remains a pretty sore spot for the American public.

This was a roundabout way of saying that I don’t really have to worry about that with my credit union. My bank does assume some risk in the form of offering loans, but all within clearly defined limits that essentially ensure the bank’s balance sheet will never veer into dangerous territory. No federal bailouts on the horizon for my bank. I can rest easy knowing my money isn’t funding any sort of complicated swaps or wild futures contract schemes or volatility plays.

But, it’s also worth noting that those of you with your money in commercial banks didn’t really have your assets at any great risk, either. In fact, you could make the argument that I, as an American taxpayer, am currently financing a safety net for massive banks that I’m then not actually making any use of.

So being a credit union member is really just leaving money on the table in favor of… an ill-informed sense of smugness? Possibly, yes – I’m paying for risky bets by massive banks whether or not I utilize those banks.

I Get A Vote. I Haven’t Used It, But I Have It

So one aspect of most credit unions is that each and every member gets a vote for the board of directors, regardless of the size. That’s a level of collective control that helps ensure your credit union has the best interests of the community at the core of its decisions.

Of course, essentially all of your commercial banks are public companies. This means that, while your deposit may not secure you a vote, you could still just as easily purchase stock in your bank and get a vote on the board of directors that way. Actually, you could buy a lot of stock and hypothetically get a chance at wielding a level of control unavailable for your credit union member.

Also worth noting is that I have not, in 20 years, actually exercised my vote. So it’s hard to see this as a particularly essential factor of my membership.

Customer Service is Better…in That it Exists

The customer service one receives from a major commercial bank has a reputation for being sketchy, at best. The competitive landscape in attracting customers may push banks to offer more rewards and perks, but the second reality is that changing banks is not easy. What does that mean? It means investing resources into improving your experience once you’re at the bank is not a priority.

Not true at your credit union. There, customer satisfaction is really the only reason the institution exists at all. Most consumer surveys regarding bank services confirm this: Credit unions consistently score higher than the industry average.

Admittedly Less Convenient

Credit unions do have a national network to support each other, but for the most part you have to accept a lot less access when you’re a credit union member. I often find myself with someone who needs to get cash and starts to tell me “look for a Bank of America ATM.” I don’t get this, I’ve long since accepted that if I’m out and about and need cash, I just have to accept that I’m paying an ATM fee. Not so for my friends, they actually have a shot at finding the ATM they need, even a physical location they can visit.

It’s probably not a huge deal, as I can plan to get cash at the select few ATMs where a withdrawal is free for me and just plan around it, limiting my fees to once every few months or so. But, depending on your habits, you may find the convenience of a large commercial bank more than makes up for any other benefits you could get from a credit union.

Even if I’ve Convinced You, You May Not Have the Option

So, if you’ve read all I’ve written about credit unions here, you may be thinking that it presents a picture of a utopia – a beautiful system in which your superior service and lower fees are perfectly paired with a noble sense of the greater good.

Great! Except that you may still not be able to become a member. No commercial bank will refuse someone with money. Stroll in and set up an account. They’re waiting for you. Credit unions, though, are often designed to serve a specific membership. I was only able to get in at my credit union because of my parents and their membership. Plenty of other credit unions will only accept you as a member if you live and/or work at certain places, so options are more limited no matter how you cut the cake.

I Mean, Have You SEEN It’s A Wonderful Life?

Push comes to shove, it’s a matter of personal preference.

I like being a part of a bank that’s sole purpose is to serve the community. I also like feeling like my bank is working with me, not against me. That said, if I were a much more proactive individual, I’m sure I could shop around and secure a relationship with a commercial bank that would save me money in the long run while also offering more services.

Is one better than the other? Not really. But for my money, I feel pretty good about sticking with my choice.


DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Symbol Name Price Change % Volume
C Citigroup Inc. 55.77 -0.21 -0.38 27,670,718 Trade
BAC Bank of America Corporation 24.40 -0.12 -0.49 64,860,054 Trade
JPM JP Morgan Chase & Co. 101.12 0.10 0.10 17,250,942 Trade


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