Recent outrage over increasing fees at some of the country's
biggest banks has led to a movement toward smaller banks and
credit unions. Most notably, Bank of America's $5 fee on debit
card users (since repealed) prompted the creation of "Bank
Transfer Day," a consumer activist initiative encouraging a
transfer from commercial banks to not-for-profit credit unions by
November 5, 2011. Bank Transfer Day gained popularity through
Facebook and other social media. It gained the support of the
Occupy Wall Street movement, but remains unaffiliated, even
distancing themselves with a statement on its Facebook page that
it "does not endorse any activities conducted by Occupy Wall
Bank Transfer Day saw measurable success. The Credit Union
National Association saw traffic to its website double and its
members reported a 50 percent increase in new account activity
during the height of the movement. Like most consumer activist
movements, Bank Transfer Day's biggest impact is on raising
awareness. Many consumers who have accounts at commercial banks
do so without consideration to credit unions. The convenience and
ubiquity of big commercial banks made them the default choice.
That trend is shifting, but politics and activist movements
aside, should you switch to a credit union?
Credit unions offer some attractive features over a traditional
commercial bank. First, as not-for-profit financial cooperatives,
credit unions do not issue stock or pay dividends to outside
stockholders. Instead, customers are "members" and each member is
both a customer and an owner. As a result, earnings are returned
to members in the form of lower loan rates, higher interest on
deposits and lower fees.
Credit Union deposits are not covered by the FDIC, instead they
are covered by the National Credit Union Association, or NCUA.
Just like FDIC, the NCUA insures deposits up to $250,000 and is
backed by the full faith and credit of the U.S. government.
Generally, the biggest benefit to large banks is convenience. Big
banks typically have a large number of branches and ATMs for you
to conduct business or access cash. However, many credit unions
have partnered up to allow fee-free ATM access to each other's
members, greatly expanding the number of available ATMs for
credit union customers.
Additionally, use of technology, such as online features and
capabilities, is generally more advanced at major commercial
banks. Some credit unions may be catching up, but you should
consider your own banking habits and whether or not a credit
union offers the features that you value.
By statute, credit unions are not allowed to serve the general
public. Membership may be obtained through groups such as alumni
or students of a certain university, employees of a firm or
simply based on the location of your residence. Visit the Credit
Union National Association website and click on the link for
consumers to find a list of credit unions in your area.
FPA member Eric S. Toya, CFP®, is Vice President of
Wealth Management for Trovena, LLC in Redondo Beach, Calif. Eric
graduated from the University of Southern California with a BS in
Finance and Accounting. Eric has been quoted in national
The Wall Street Journal
Los Angeles Times