If your mind has lately been swimming with thoughts of the European currency crisis, German interest rates or the economic plans of the U.S. presidential candidates, take a break. Economic uncertainty in complicated times dictates a need to get back to basics in your personal strategy.
These days there's a financial organization that can likely save you 4 percent on your credit card rate and also give you an extra percentage point yield on your savings. It's called a credit union. Is that basic enough for you? There are 14,000 credit unions nationwide, so there's a reasonable chance there's one connected to your work place.
All credit unions and their terms are not alike, but it makes good sense to check first with yours before you plunk your money down at the bank. There are reasons why terms are often better at credit unions.
"The biggest reason for the more favorable rates is that credit unions are cooperatives and aren't in the business of maximizing their profits," explained William Hampel, chief economist for the Credit Union National Association, based in Madison, Wis. "They don't have to pay dividends to stockholders, since they're owned by the members themselves."
The returns are impressive. Nationwide, the average money market account yield at a credit union is 3.7 percent vs. 3.03 percent at a savings and loan and 2.81 percent at a bank, according to the Bank Rate Monitor newsletter. The average one-year certificate of deposit yield at a credit union is 4 percent vs. 3.62 percent at a thrift and 3.1 percent at a bank.
Loan terms are even more advantageous. The credit card cost nationwide at a credit union averages 14.3 percent, compared with 18.48 percent at a thrift and 18.41 percent at a bank. For new car loans, credit unions average 7.8 percent, thrifts 9.65 percent and banks 9.13 percent.
"While bank credit card issuers have been ripping consumers off with high rates, credit unions have worked to bring rates down," said Robert Heady, publisher of the Bank Rate Monitor in North Palm Beach, Fla. "Another plus with a credit union is that you'll be dealing with a person just like yourself if you apply for a loan, not a less-than-sympathetic bank executive."
Credit unions by their nature are more efficient. Since they don't serve the general public, they can have lower cost structures.
"Another factor making credit unions more competitive is the fact their loan losses are less than banks and savings and loans," observed Charles Filson, president of Callahan & Associates, Washington-based consultants to the credit industry. "The average charge-off of uncollectible loans at banks is more than 4 percent, compared to about .5 percent at credit unions."
Because credit unions are offered in a company environment, the average member is employed, has a work history and a stronger-than-average credit rating. Credit unions also offer an insurance safety net.
"We're supervised by a federal agency called the National Credit Union Administration, the custodian for the insurance fund that insures member shares up to $100,000," pointed out Robert Street, president of the American First Federal Credit Union in La Habra, Calif., which has 88,000 members nationwide drawn from retail food and drug companies. "Importantly, the credit union fund for years has been healthier than the funds that have backed the banks and savings and loans."
According to the Credit Union National Association, 95 percent of credit unions are federally insured. Insurance premiums charged to credit unions are lower than those of banks and thrifts, which once again can translate to more favorable terms for members. The number of credit unions, 14,000, is down from 22,000 a decade ago. That's due to mergers stemming from a particular credit union's membership decline or financial difficulty. It has become increasingly difficult for the very smallest of credit unions to keep pace with modern demands.
While, on average, credit unions do offer better terms, such terms vary widely among credit unions. It pays to check out your credit union carefully. Only a very small portion offer membership to the general public in a region, in addition to the traditional membership tied to work places or groups.