A Better Bet Than Banks?

Even though CardRatings.com mainly focuses on commercial-bank credit cards, Arnold does his own banking at a small local credit union. "I'm a big fan," he says. "Unlike a lot of banks, most credit unions don't try to cross-sell you products you don't really want."

You should bear in mind, however, that loan accounts you open at a credit union are usually tied together. With a car loan, the car becomes collateral for the balance on your credit card issued by the credit union. That's a problem if you default on the card.

Limits on Lending

Unlike many banks, credit unions emerged relatively unscathed from the subprime-mortgage meltdown and do not have huge losses to write off. They are eager to increase their lending to small-business owners, except that federal law limits their ability to do so: any loan above $50,000 is considered a business loan—and total business loans can't exceed 12.25 percent of their assets. Credit unions are urging Congress to pass pending legislation that would raise those caps, allowing the lending of 25 percent of assets to business owners and redefining a business loan as any amount above $250,000.

A Can-Do Attitude

It's a telling indictment of banks that what members seem to like most about credit unions is their service. When my sister arrived in a new town to start a job, for example, she was able to borrow to buy a bed the moment she joined a credit union. And a friend says his credit union found a way to wire emergency money to his daughter's overseas bank account—after two banks told him it couldn't be done.

Disillusioned bank customers say the contrast is striking: "Our community bank went through three ownership changes in the past few years, each time with cuts in service," says freelance journalist Dave Lindorff of Maple Glen, Pennsylvania. "I walked in to get an advance on our home-equity line of credit one day and the teller said it had been frozen." After Lindorff pointed out he had substantial equity in his house, was using only 30 percent of his credit line, and had never missed a payment, the bank said it would let him apply for a new line…at a higher interest rate. Instead, he found a local credit union where he got a home-equity line at a rate lower than his original one at the bank. Says Lindorff: "The credit union couldn't have been nicer."

Contributing editor Lynn Brenner wrote about the new dangers in bond investing in the May/June issue.