The coronavirus crisis is forcing many Americans to take a hard look at their finances — and that includes re-evaluating where they keep their money.
Banks may be the most obvious option, but if you've ever spoken with a friend who's a member of a credit union, you've probably heard them gush about their financial institution. Credit unions tend to have pretty passionate fans. The only question is why.
Mike Schenk, chief economist at the Credit Union National Association, says that, “from the standpoint of products, services, technology and so forth, it’s similar to a bank.” Your money is insured, you can use a mobile banking app, you can get a debit card — the works.
He explained the factor that sets credit unions apart is their philosophy. Banks are generally for-profit entities, which means they tend to serve shareholders. Credit unions are not-for-profit cooperatives, which means they tend to serve customers.
It’s in their DNA. In fact, American credit unions have their roots in a grave financial crisis. (Sound familiar?) Carrie Birkhofer, the president and CEO of Bay Federal Credit Union in California, says that around the Great Depression, banks often would turn away borrowers seeking small-dollar loans because they weren’t profitable. So people began to do it themselves. A group might get together at the office, for example, and raise $100 to lend to a colleague, knowing that he’d pay them back as soon as he could.
The system was formalized in 1934. FDR signed the Federal Credit Union Act “to make more available to people of small means credit for provident purposes through a national system of cooperative credit,” according to the law’s text.
At credit unions, customers are usually referred to as “members” because they technically own part of the institution. They can run for the board of directors, and in some cases, they even get paid dividends.
“We don’t have shareholders demanding a market rate of return on investments, so we take the profits that would go to shareholders and we pass that through to member-owners,” Schenk says, listing off benefits like lower fees, higher savings yields and favorable interest rates. “We’re just as good, and actually better than, the other guys.”
These benefits lead to good relations between credit unions and their members. Schenk provided a stat from a January survey that found consumers are two times more likely to agree strongly that credit unions “act in consumers’ best interests and are good corporate citizens” than to give the same answer about banks.
That can be especially important in times of crisis.
“If you look back at any natural disaster, government shutdown and now during coronavirus, credit unions have always been there for their people — even before the government or the Fed asks them to be,” says Jaqueline Ramsay, a spokeswoman for the National Association of Federally-Insured Credit Unions. ”They don’t wait for a regulatory policy or a call from a Congressperson on the Hill to say, ‘Hey, I need you to help the people.’ They already have plans in place.”
And people take notice: Credit union membership increased 31% in the decade following the Great Recession.
The biggest challenge seems to be the fact that credit unions have somewhat limited fields of membership, meaning you have to be working in a certain field, located in a certain area or associated with a certain company in order to qualify. The largest American credit union, for instance, is Navy Federal, which serves members of the armed forces and the Department of Defense, veterans and their families.
Finding one you meet the requirements for may take “a little bit of research,” Birkhofer says. There are more than 5,000 credit unions in the U.S.
The other issue with credit unions has to do with their size.
Because they’re generally smaller than, say, Wells Fargo or Bank of America, they simply can’t have millions of branches and ATMs on every block. Credit unions collaborate with each other, so you'll almost definitely be able to find a location close by… but there’s no guarantee on how close it’ll be, Ramsay says. If you need cash and can’t find a participating ATM, you might have to pay a fee.
Bottom line: Credit unions are similar to banks in the services they offer. They have a feel-good mission that people love — and some tangible money benefits.
If you want to join one, you should look into what you're eligible for. Sites like yourmoneyfurther.com can help me figure it out. If all goes well, you might just end up being a fan of your financial institution.
“Credit unions are, for those that haven’t discovered it, the best-kept secret,” Birkhofer says.