A primer on banks and credit unions
By Julie Filby
To be good stewards of their money, consumers should know their options when it comes to financial institutions. In an industry filled with choices, one might ask: Where should I do my banking?
“There are a lot of people asking that question right now,” according to Chris Myklebust, commissioner of the Division of Financial Services for the Colorado’s Department of Regulatory Agencies. “We’ve seen (lately) … that people want to do ‘something’ different, but they’re not really sure what.”
In researching financial institutions for checking, savings, loans or investments, there are many factors to consider.
Bank or credit union: What’s the difference?
Credit unions adopt a cooperative type of structure: customers are “members” and members own the institution. They fit into a field of membership, sharing a common bond such as employer, church, school, labor union, homeowners’ association or specific geographic location.
“It’s members lending to other members,” according to Myklebust. “That’s why credit unions were organized ‘way back’—to allow people to share credit with each other.”
The earliest financial cooperatives date back to early 19th-century England, with the concept arriving in America at the start of the 20th century. Early credit unions provided an alternative to “people of modest means,” like farmers, when banks were known to cater to people with more resources.
They continue to operate on a not-for-profit basis.
Conversely, a bank is a for-profit corporation owned by stockholders.
“Banks make money for the benefit of their shareholders,” Myklebust said. “They operate to earn money for the shareholders.”
However, today consumers may not see “a whole lot of difference” between banks and credit unions.
“Times are different now,” he said. “There’s much more of an expectation that our financial institutions provide us with checking, savings, investment options, construction loans; things like that.
“So credit unions over time have met the demands of consumers,” by offering more services.
When considering alternatives, whether a bank or at a credit union, Myklebust advised shopping around.
“I urge consumers to do a little shopping, just like when they’re going out to buy food or clothes,” he said. “Shop around and find out what’s going to be the best in the marketplace as far as rates.”
Did You Know?
The first credit union in the United States, St. Mary’s Cooperative Credit Association, was organized by Catholics in Manchester, N.H., in 1909.
The oldest bank in the world is the Monte dei Paschi di Siena in Italy, which has been operating continuously since 1472.
Sources: National Credit Union Administration, Mint.com
Key rates to check are savings rates, credit card rates and auto lending rates. He added while mortgage rates are important as well, there’s not as much leeway in this area at this time.
“They’re pretty much low everywhere,” he said.
In addition to rates, he advised looking at fees.
“Some institutions really want to work with their customers,” he said. “While some providers are killing people on the fees, even though the rates are low.”
He also advised examining the financial health of an institution and reading reviews of their service. One source for such information is www.bankrate.com.
Finally, he said, pick a place that feels comfortable.
“I advise you to ‘vote with your feet,’” he said. “If you’re not happy with the services provided by an institution, find someplace different.
“Products and services are more or less ‘plain vanilla’; find a place where you are going to be treated well.”