Here's how bad it's gotten for bankers: they're less popular than politicians, according to a recent Zogby Interactive survey. And no wonder. After receiving a huge bailout to escape a debacle of their own making, America's biggest banks raised their fees, posted record profits, and paid enormous bonuses to their executives. Meanwhile, most of us are still struggling to regain our footing. Unemployment hovers around 10 percent—and although the bailout was supposed to help get credit flowing, banks still are not lending to the small businesses whose recovery is vital to creating jobs. "We need a citizens' intervention to reform our financial institutions," says pundit Arianna Huffington. Late last year she launched Move Your Money, a campaign that urges Americans to shift their accounts to community banks and credit unions.
Some of us are responding: 9 percent of those polled by Zogby say they've taken some business away from banks, in protest. Moral outrage aside, there are always three compelling reasons to switch banks: lower fees, higher interest on deposits, and better service. As it turns out, you are likely to find all three at some of the smallest financial institutions in the nation: credit unions.
"The average consumer does much better at a credit union than at a bank," says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. "Credit unions have lower requirements for waiving fees, offer better deals on car loans, and are generally more flexible in responding to customers' problems."
Before You Join (Click to Expand)
1. Cast a wide net.
2. Make sure your deposits are insured.
Ninety-eight percent of the nation's credit unions are covered by the National Credit Union Share Insurance Fund, which is backed by the full faith and credit of the U.S. government and provides the same limits of coverage as the Federal Deposit Insurance Corporation.
3. Ask about services you're seeking.
Most credit unions provide a full range of banking products and services, but smaller ones may have limited offerings. Some small credit unions don't offer mortgages or business loans, for example, nor will they let you pay bills online.
4. Check for CO-OP Network membership.
This network provides surcharge-free access to automated teller machines at more than 28,000 locations in the United States and Canada, including 9,000 deposit-taking ATMs and 5,500 7-Eleven stores. Plus, the CO-OP Network's members have access to 800,000 cash machines worldwide through links to NYCE, STAR, Cirrus, Pulse, and Plus.
The 7,700 credit unions in the United States are nonprofit cooperatives; they exist to serve their 92 million members. Yet after more than a century, credit unions are still the best-kept secret in banking—partly because, unlike banks, they don't spend much money on advertising.
Contrary to popular belief, it's not hard to join a credit union. Membership is legally restricted to groups of people who share a common bond—such as employees of one company, or members of a religious group or professional association. But eligibility rules are now so liberal that virtually anyone who wants to join a credit union can find one, says Curtis Arnold, founder of CardRatings.com, a credit card-information website. You can sometimes even buy your way in: pay $20 once to join the National Military Family Association and you can become a member of Pentagon Federal Credit Union.
An Edge on Rates
Good things happen to interest rates when you take the profit motive out of banking. On May 13, for instance, the average one-year CD at a credit union paid 1.19 percent, whereas at banks the average was 0.96 percent. Debt financing showed a wider spread: rates for 36-month unsecured loans averaged 10.61 percent at credit unions, compared with 12.36 percent at banks.
These differences add up. In 2009 consumers saved $7.3 billion by using credit unions instead of banks, according to the Credit Union National Association. (And in case you're wondering—yes, almost all credit unions are federally insured.)