Time to Switch to a Credit Union?
Saving on fees, plus the feeling of taking your money from an institution that blew up the economy: What's not to like? Well, a couple things, potentially.
Joining a Credit Union: Family Ties Required
Credit unions are not-for-profit and owned by their members. To join, you or one of your immediate family members has to belong to an organization with a credit union. In New York, for example, Actors Federal Credit Union accepts members of Actors Equity and nearly 100 other performing arts organizations, and New York University, The New York Times, and Saks Fifth Avenue all have credit unions for their employees. Many religious organizations and civil service outfits also offer them.
To find a credit union that will have you as a member, start with your university -- some offer membership even to alumni; then try your job, especially if it's unionized, and your church. Check with your spouse's, siblings', and parents' organizations. You can also check for unions you may be eligible for at the National Credit Union Administration site, and the Credit Union National Association site.
Once you find a credit union, the main benefits are, according to NCUSIF, typically higher interest rates for savings accounts and lower rates for loans than most banks offer. Many offer the same ease of use that a bank would, with online bill pay and debit cards. CO-OP Financial Services, which bills itself as the largest credit union-only ATM network in the country, offers fee-free withdrawals from its network of ATMs at numerous branches, including, in New York, many 7-Eleven and Costcos.
Actors FCU, for one, has more than 100 ATMs within five miles of Minyanville headquarters in New York's Union Square. Almost none of these ATMs, however, accept deposits, which means you need to go to the physical branch or mail in any checks. Actors FCU has an eDeposit program that lets you “deposit” checks online; depending on how much is in your account, you're allowed access to a percentage of the money until the check clears.
One thing you won't necessarily escape from with a credit union is fees. Unlimited Bill Pay, typically free, is $1.99 per month at Actors FCU, and you pay $7.50 per quarter for maintaining a share balance of under $100 and $3 every time you call about your account. Although Teachers Federal Credit Union's share draft accounts are fee-free, it charges business account customers $10 per month for maintaining less than $5,000 in the till, as well as 1 percent “currency handling” fee for each transaction that involves paper money.
Credit unions offer their own specific benefits to members. Michigan's credit unions, for example, offer member discounts similar to what some credit card companies offer, through Invest in America partnerships with Sprint, Dell and DirectTV, among others.
Online-Only Banking Is Another Frugal Option
If you can't get into a credit union, online banking is another route to consider.
ING Direct's (ING) Electric Orange checking account operates essentially like any brick and mortar bank. Your basic banking is fee-free and entirely paper-free, but you pay fees to buy checks, and for overdraft checking, stop payments, and foreign transactions. And while many banks will offer you interest on your checking account as long as you maintain a high balance, every Electric Orange checking account earns interest -- anything under a $49,000 balance is currently 0.19% and rises as your maintained balance does.
As from a credit union, you can make withdrawals using the Mastercard-based debit card from a network of tens of thousands of ATMs, but you can only deposit through direct deposit or by mail to the company headquarters in Minnesota.
E-Trade (ETFC), another online bank, sweetens the pot a bit with unlimited ATM fee refunds -- you can use the first ATM you come to and the bank will reimburse you. It also offers interest with its Max-Rate checking -- 0.05% for a balance under $5,000, and 0.15% for any balance above that. As with ING, any paper deposits you make must be by mail.
E-Trade also has a physical location on Park Ave. and one in Jersey City. Whether you'd be welcome to conduct mundane business at these branches is unclear, but it might give you some peace of mind to know that, in a pinch, you could pin down a bank employee.
Both banks offer many of the conveniences of an offline bank -- bill pay, debit cards -- and both are FDIC-backed. They'll let you transfer your current account electronically through Automated Clearing House, which takes a few days, and E-Trade will also let you do it immediately by wire transfer. Both also reserve the option to run a credit report and otherwise verify your identity in the usual ways.
Pitfalls of Banking With the Little Guy
The two main things to keep an eye out for with any banking institution are, first, FDIC backing -- there are exactly zero reputable banks without this insurance -- or, for credit unions, NCUSIF backing. Some credit unions use private insurance companies, but unless you have inside knowledge about the insurance company, it's probably not worth saving fees to take such a risk. To date, no one has lost personal banking money through an FDIC or NCUSIF-backed institution.
Second, look to see how well your proposed financial institution is capitalized. The major banks are, some might say, too big to fail, and their capitalization is no secret. For regional banks, online banks and credit unions, however, do some due diligence. Although you won't lose your personal banking money, you don't want to reposition yourself at a company that can't balance its books.
With regional banks, especially, you may find yourself right back with your old bank when it buys out your smaller bank -- and right back to all the old fees. “You are going to see an increase in fees over time as more consolidation occurs, and banks will seek additional fee income because of the downturn of the markets,” Michael Gallo, partner at firm DeCotiis FitzPatrick, Cole & Wisler, told MainStreet.com in October 2008 -- just after Lehman Brothers filed.
Another word of caution on regional banks: If ATMs are a big part of your life, consider whether you are actually saving fees by moving to a regional. It will likely have fewer upfront fees, but it will also offer far fewer ATMs -- which means you'll be paying the ever-rising off-network fees far more often -- possibly more than a monthly debit card fee.
(See also: Credit Unions See New Business in Anti-Wall Street Angst)
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