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Question:


Why are interest rates (for savings and for loans) so much better at credit unions than larger banks? It’s a bit bizarre, like the reverse should be true.
-JenaeJ


Answer:


It’s not just through deposit and loan rates that credit unions give customers a better shake than banks. They tend to charge lower and fewer fees. While free checking accounts at major banks seem to be going the way of the dodo and silent movies, for instance, a recent study by Bankrate.com found that 38 of 50 credit unions that it surveyed still offered free checking with no strings attached.

There are four main reasons that credit unions offer better interest rates and prices. They are cooperative institutions, meaning that they are owned by their customers and do not exist to make a profit. Not having profits to disperse to shareholders or accumulate on the balance sheet is a sure way to keep loan rates down and deposit rates up. As it turns out, however, massive losses at banks can be even worse for customers than massive profits. The financial crisis left banks scrambling to get well again, so they weren’t in a position to offer sweet deals to get or keep clients. Some institutions still didn’t survive; that left fewer competitors once the crisis ended, which doesn’t make for consumer-friendly conditions, either.

Credit unions have fewer moving parts; they accept deposits and make loans. By not engaging in numerous lines of business, such as asset management, insurance, investment banking, proprietary trading and commercial lending, they keep their administrative and regulatory costs down. Their simplicity and narrow customer bases also mean that marketing costs are low for credit unions. When was the last time you saw a full-page newspaper ad for one or a slickly produced TV commercial?
-Conrad de Aenlle



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