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 Most notably, Bank of America's $5 fee on debit card users (since repealed) prompted the creation of "Bank Transfer Day," a consumer activist initiative encouraging a transfer from commercial banks to not-for-profit credit unions by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 Street."
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. 1
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 publications, including The Wall Street Journal , Money Magazine and the Los Angeles Times .
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