You’ve probably read it somewhere — credit unions are better than banks. That’s what Consumer Reports, Bankrate.com, and Money magazine say. Credit unions are owned by members. They are not for profit. They pay higher interest rates on checking accounts, savings accounts and CDs. They charge lower interest rates on credit cards, car loans and home loans. They also charge lower fees for overdrafts and late payments. They have more friendly customer service. Credit Unions have NCUA insurance just like FDIC insurance for bank deposits. What’s not to like them? It begs for a question:
If credit unions are better than banks, why don’t more people use them?
According to Monthly Credit Union Estimates (pdf, pp 9-10) by the Credit Union National Association, credit unions’ market share is much smaller than banks’. For the purpose of market share comparison, I’m counting savings and loans — think USAA and ING Direct — as banks.
|Non-Revolving Consumer Loans||11%||28%|
I don’t have a good answer to this question of why the credit unions’ market share is so small if the conventional wisdom is that they are better than banks. I’m hoping you can help me figure out. I have a few hypothesis in no particular order. First I will share why I’m not using a credit union myself.
Banks have better products
The Citibank checking account I’m using works very well. Not only it’s free with no minimum balance, you are actually paid reward points worth $5/month to use it. My credit cards are also issued by banks, not credit unions. These cards offer better rewards. My mortgage was also funded and serviced by a bank, although this is perhaps where credit unions are most competitive.
Banks market themselves better
Banks have larger marketing budgets. They advertise on TV, radio, billboards, in newspapers and magazines, and online. More marketing brings more customers. You would think customers choose their banks by the services they get and by the prices they pay, not by who advertises more, but maybe some fall for advertising.
Banks have more outlets
Banks have more branches and more ATMs. They are on street corners and in grocery stores. More outlets mean more convenience for their customers.
One can argue that in the world of direct deposits, debit cards, online bill payment, and cash back from grocery stores, the benefit of more outlets is more perceived than real. However, whenever I go into a bank branch, it’s full of people, doing something. Some customers definitely prefer to do their banking face to face.
Many credit unions participate in the CO-OP ATM network and offer CO-OP Shared Branch services. CO-OP ATM network offers nearly 30,000 surcharge-free ATMs nationwide. CO-OP Shared Branch lets you do business at any of 5,000 participating credit union branches. The numbers are there but not necessarily the locations. If you just drive around, you don’t see credit union branches.
People don’t know they can join a credit union.
This goes with marketing. In the past you have to be an employee of certain employers or you have to be a member of an association of some kind in order to join a credit union. Nowadays there are many community based credit unions. As long as you live in certain counties, you can join many credit unions in the area. There’s even a Find A Credit Union service which lets you search for a credit union by your address.
I put in my info and I got a list of at least 15 different credit unions around me. I’m pretty sure most people can join a credit union if they really want to.
Banks are better overall
After everything is taken into consideration, people chose banks. Banks and credit unions compete for deposits and loans. Customers are looking out to their own best interests. After everything is taken into consideration, more people still chose banks.
Sure people complain about banks ripping them off by giving them very little interest for their savings and charging them high fees for overdrafts, but after all is said and done, people voted for banks with their wallets. Maybe, just maybe, the conventional wisdom is wrong and banks are actually better after all?
Now it’s your turn. Do you use a credit union for your checking account, savings account, CD, credit card, car loan, or home loan? If not, why not? If you already use a credit union, why do you think more people don’t use one?