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Question:


With banks charging excessive fees, what is the difference between credit unions and regular banks? I think I may want to switch.
-415_ELT


Answer:


This is not the most popular idea at the moment, but banks have to make money, just as other businesses do. The way that retail banks used to make a large portion of it is through the spread between the interest rates they charge on loans and the rates they pay out to depositors. With interest rates at their lowest levels in decades, that spread is exceedingly thin. The other main source of income is fees to merchants and customers when customers use credit and debit cards, and regulators have limited those in the last few years.
 
Whether or not bank fees are excessive or justified, credit unions seem to offer accountholders a better deal. Their rates on savings accounts and certificates of deposit are slightly higher than those offered by banks, mortgage rates are about the same, and rates on credit cards and car loans are significantly lower. Credit unions are also less likely to assess monthly account fees or fees for using debit cards and so forth. They can be so magnanimous in part because they are operated as not-for-profit entities. That means they try to come out ahead every year, but what money they make goes into their reserves for the ultimate benefit of their members, who are their depositors. Also – and don’t underestimate this when ranting against evil banks – credit union profits are untaxed, so the government gives them special treatment.
 
Some other considerations: It’s fairly easy to elude some of the worst fees that banks impose. Having your paycheck deposited directly will eliminate checking account monthly fees at most of them. Adjusting habits to make purchases with credit cards or cash instead of debit cards will cut those charges, which seem to be dying a quick death anyway. And if you can’t escape fees altogether, keep this in mind: Whatever you think of them, the revenue they generate is used to pay for all the services that customers use and probably take for granted. Those tellers and call center staffs don’t work for free. Their massive technology and security systems cost serious money too, as do the branch and ATM networks. If you switch to a credit union, you may cut your costs, but you may sacrifice convenience too.
-Conrad de Aenlle



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