Time to Switch to a Credit Union?

If you're among the nearly 57 million consumers and small businesses that Bank of America (BAC), by its 2010 estimates, consorts with, chances are you haven't given the banks policies much thought up to now. It's a bank. It holds your money, lets you see with accuracy and regularity how much is in there, and lets you withdraw money from a proliferation of ATMs whose ubiquity long ago eclipsed even Starbucks'.

For home and small-business account holders, Bank of America's many corporate woes over the past four years weren't all that relevant. And then came the Durbin amendment of the Dodd-Frank Financial Reform and Consumer Protection Act, which puts a low cap on the amounts banks can charge merchants who accommodate debit card transactions.

Taking a page from the utility companies, Bank of America opted to shift that loss onto consumers by charging a monthly fee for debit card transactions. Now, things are getting personal industrywide. The fee (for now) is $5 a month at both BoA and SunTrust. Wells Fargo (WFC) and Chase (JPM) are charging $3, and while Citibank (C) won't go after debit card transactions directly, it's charging $10 per month to those who keep a balance of less than $1,500.

Because the Durbin amendment only applies to banks and credit unions with assets of $10 billion or more, it's primarily the major banks that will levy new fees to cover their revenue losses.

With Occupy Wall Street the biggest story of the season, more people than ever are rethinking their relationship with their banks. Credit unions, seeing their moment, have stepped in to offer their own theoretically anti-Wall Street version of a money lender-holder. But switching to just any financial institution, just because it hasn't been painted with the TARP brush or crashed the economy with massively dumb bets, can ultimately turn out to be an empty gesture -- especially if you end up paying more than you did at a big bank.

Beyond the fees and the (to put it charitably) image problem of the former, banks and credit unions have some differences you might not be considering. For example:

Safety: Different Insurer, Same Benefits
Banks and federally insured credit unions both insure your checking (called share drafts at credit unions), savings (shares at credit unions), money market, and certificates of deposit up to $250,000; banks through the FDIC, and credit unions through the National Credit Union Share Insurance Fund.

If you deal with more than one bank, you get $250,000 of insurance per bank. Neither will protect your stocks, bonds, annuities, life insurance policies, or safe deposit box contents.

Risk: Credit Unions Mess Up, Too (But Don't Blow Up the System)
The NCUSIF claims credit unions "follow conservative investment practices and live within their financial means” -- and it's mostly true, but no more uniformly true of credit unions than it is of banks, once also bastions of conservatism. Credit unions aren't immune to market fever.

"It used to be that a credit union manager just wanted to serve the members of a particular group," Jeff Schwalen, president and chief executive officer of Hiway Federal Credit Union in St. Paul, Minnesota, told the Star Tribune in March. "But as they got further and further out in the community, the pressure to make bigger loans grew. ... And they started getting into areas where they didn't have expertise."

Specifically, many of Minnesota's credit unions invested in risky real estate deals that went bust, and allowed members to borrow 125% of the value of their homes and take out interest-only and adjustable-rate mortgages -- practices that, lumped in with other shenanigans, were decried as “predatory” when banks engaged in them.

And these decisions had the same infelicitous outcome. Several Minnesota credit unions neared collapse as their members defaulted on these loans, and the unions had to be bought out or, worse, found themselves deeply undercapitalized.

One thing credit unions don't do, the Star Tribune notes, is sell loans to investors or raise capital through stock sales, so bad debts remain relatively contained. And credit unions typically recycle their revenues and use their capital to counteract rainy days.

Ready to make the switch, then? Here's where to start.