Are Credit Unions and Community Banks the Answer?
Rising fees, misspent federal bailout money, executive bonuses: people have plenty of reasons to be frustrated with large, corporate banks. Customer service complaints, along with the rising fees, have led to a mass exodus by bank customers who decided to give community banks and credit unions a try. Is this switching a knee jerk reaction or a wise move by the masses?
Customer service has always been a tool that community banks use to draw people away from major chain banks. Fees are often lower at these locally-owned underdogs, but a fee-free experience is not guaranteed. Credit unions, meanwhile, are basically owned by their customers (who are often required to buy a nominal share when they join), so they do not have to answer to investors, only to their customers. Again, fees are usually lower at credit unions, but not every single organization has the same fee schedule. So, yes, at first glance it seems like credit unions and community banks do offer a better environment to bank in. The switch might be worth it for normal people (like you and me?) who aren’t camped out at an Occupy Wall Street protest but still think that a bank with a little more customer friendliness and fewer fees would be damn nice.
By the way, online banks like Ally Bank do not fall into the community bank/credit union realm, but they use their low overhead (no brick-and-mortar locations or unionized bank tellers) to offer fewer fees and even promise to reimburse customers for any ATM fees that they incur. If the community bank near you is too disorganized, and you don’t qualify for the local credit union, Ally could be a viable alternative. You wouldn’t be sticking it to the man as much as if you went completely un-corporate, but you’d still be giving the finger to corporate-owned brick-and-mortar chains.
Credit unions, despite their membership requirements, are worth a look for anyone who wants to change banks. This is because they are owned by their members, as I said before, and because they have better rates on loans and also on investment vehicles like CDs and money market accounts. Also, they’re more likely to give loans to people with reasonable, but not stellar, credit. Even the nicest, family-owned community bank (run by a socially-conscious banker, a la Jimmy Stewart in It’s a Wonderful Life) might balk at giving a loan to someone who could easily qualify at a credit union. That said, some sloppy credit card abuser who is near bankruptcy is still going to get turned away at a credit union.
Financially savvy up-and-comers who want to invest or start saving for retirement will have some options at community banks and credit unions, but they may feel limited. When it comes to the sheer number of services and products, chain banks still have the edge. But online brokerages like Scottrade and even eTrade can provide cost effective services and even provide retirement accounts. If eTrade stopped running all those baby commercials, maybe they could afford to lower their fees to Scottrade’s level, but, for now, I see Scott as the better choice, especially since they have brick-and-mortar locations around the country if you should need someone to hold your hand (or if you want to walk in for a free foam cup of air-pot coffee).
ATMs are another variable that community banks or credit union wannabes have to consider. Most smaller financial service providers belong to nationwide ATM networks, like the Star Network, so users can get fee-free ATM access easily. Of course, if you choose a bank or union that doesn’t belong to a network, get ready to pay some serious fees (or at least make sure that there is a comely teller at the bank so that you don’t mind heading in frequently to make cash withdrawals). Or, maybe you’ll find the customer service is worth the inconvenience of limited ATM access.
The bottom line: credit unions and community banks are a good option, but it is probably best to look into what’s available in your area before jumping in.
About Josh Lew Josh Lew lives in the Midwestern US when he is not traveling. He is a columnist for Gadling and has contributed to Hackwriters and Skive Magazine.