Monday, September 21, 2009

Credit unions versus banks

On Mondays, we answer questions on the blog from readers. If you have a financial question, post it in the comments section or e-mail

QUESTION: I would like to use a credit union for my banking needs. Is there any reason not to do so?

ANSWER: No real difference in terms of safety or basic services. Where you'll find a difference, if any, is the range of services. Unless you're working with a huge credit union, you're not likely to see the depth and breadth of service that you'll find at Bank of America. However, basic services will look and feel very close, and industry safeguards are very similar.

Credit unions enjoy one huge advantage over banks. Taxes. As non-profit entities (originally started to offer financial services to employees of s single company), credit unions don't pay taxes because they don't earn profits. That means they can operate on lower spreads (interest they earn minus interest they pay). Theoretically, at least, that translates into higher interest for depositors and lower rates for borrowers.

Those non-profit distinctions have fallen over the years as credit unions have grown to include folks who don't share an employer or industry. And some of the credit union have grown to incredible size, rivaling many local or regional banks. That has increased the services they offer, but, also, the overhead and salaries they must cover. Clearly, there's less and less difference between credit unions and banks. That's probably good for consumers, although many bankers don't like it much.

Like all else financial, shop around before making a decision. But if you find a credit union that meets your needs, don't hesitate to use them.

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