What are the differences between banks and credit unions?

Personal finances column
By: Paul Apfel Inside Lincoln Correspondent
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Lincoln residents looking for a financial institution - bank or credit union - have several choices within easy reach. But, which one do you choose? And why choose one while ignoring others? This article should help answer some of your questions and eliminate some confusion. In Lincoln, your choices for where to park your money or borrow some fall generally into three categories: large banks, community banks or credit unions. The large banks include Wells Fargo, Bank of America, Chase and US Bank. Umpqua Bank with its three Lincoln branches casts itself as a community bank. Credit unions include branches of Sacramento-based Golden 1 Credit Union and North Highlands-based Safe Credit Union. The large banks have been very much in the news over the past few months, mostly because of the additional fees tried and then canceled amidst consumer howls of protest. Although various financial commentators have speculated that more new fees may be coming, none are yet being marketed. Nevertheless, it is reasonable to expect that banks in general will be looking to recover some of the revenues lost with the enactment of federal legislation that effectively limited how much banks can charge merchants for debit-card use. And while consumers were lashing banks for the additional fees, credit unions were stepping up their campaigns to attract dissatisfied bank customers. Golden 1 Credit Union and Safe Credit Union Lincoln branches were among those seeking to swell their customer ranks in a special marketing effort dubbed Bank Transfer Day on Saturday, Nov. 9. The event was a grassroots effort originating with a Los Angeles art dealer upset with fees her bank was charging. The Golden 1 Credit Union branch in the Lincoln Hills Town Center extended its Saturday hours - 9 a.m. to 4 p.m. while Safe Credit Union stayed open until 5 p.m. Officials at both credit unions reported gains in new depositors. According to Golden I Credit Union senior vice-president Scott Ingram, “We had a great Bank Transfer Day. In October, our membership grew 25 percent over September and our net checking accounts grew by 82 percent. But, on Bank Transfer Day, membership growth was 122 percent higher than our average daily membership growth in October and 169 percent higher than the daily average in September.” Not missing the opportunity for a plug, Ingram added “We expect that the movement from banks to credit unions will continue as more consumers become aware of the better choice that exists with credit unions like Golden 1.” Safe Credit Union spokesman Paul Herseck also reported that Bank Transfer Day was a “great day” and resulted in several new customer signups, continuing a trend from October when new accounts were up 57 percent over September. While various national financial reports have noted that banks are now flooded with cash, suggesting that they are not seeking to retain customers or attract new ones, our conversations with several bank officials representing local banks paint a different picture. “We are interested in keeping all our customers,” said Wells Fargo spokesperson Julie Campbell. “Our company’s vision - to satisfy all our customers’ financial needs and help them succeed financially - has nothing to do with getting bigger. It’s about building lifelong relationships, one customer at a time,” she added. The move to bank locally is a powerful one, according to Umpqua Bank spokesperson Eve Callahan. Umpqua views itself as a community bank and stresses extensive community involvement. Umpqua prides itself on its customer focus and willingness to have its employees volunteer on company time to work for various local nonprofit events. Nevertheless, although Umpqua and the credit unions seem similar in terms of their focus, there are sharp differences. For example, credit unions do not have business accounts and they do not make commercial loans. Umpqua does both. But Umpqua, as well as the other Lincoln banks, is publicly owned, meaning they answer to their shareholders. The Lincoln credit unions are member-owned nonprofits that are more like financial cooperatives. Credit unions answer to their members and typically distribute profits in the form of favorable loan rates and higher interest rates for member’s deposit. Marketing hype and good intentions aside, banks and credit unions perform many of the same functions. And it’s up to the consumer to ferret out which features translate into benefits for them. Do you want or need to change financial institutions? Safe Credit Union’s Paul Hersek commented, “I sense that the desire for a change is much deeper than just resentment or frustration. There seems to be a strong desire out there for a different approach to banking, one that consistently follows through on commitment to individuals.” “Although the most recent announcements by the ‘big banks’ to retreat from their monthly debit card charge may have taken some of the urgency out of the Bank Transfer Day movement,” Hersek said, “the intense media focus on alternative banking solutions is a good thing for credit unions and community banks alike. It brings to light the importance of choosing a financial institution that best fits your needs.” In earlier articles on personal finance, I highlighted a technique to analyze financial decisions. The technique has five paragraphs. Let’s revisit this tool and see how it works in assessing your decision on where to place your money. Demand What will you do with your account? Do you want to receive money as in a paycheck or commissions and write checks on it to pay your bills? If this is true, you need a checking account. If you also want to save some money - and you should - you also need a savings account. Need a safe deposit box? Then go to an institution that has one you can rent. How will you handle your transactions? Find a branch that has hours that match your availability or check out online banking. Compare institutions to see which has the best hours for you or the most robust online financial service. Need a business account? If so, you’ll have to skip credit unions. They don’t handle business accounts nor do they make business loans. But you can still have a business account at a bank and a personal account at the credit union. Cost What are you willing to pay for the services you demand? Free checking gets you in the door but that may not be enough. If you value certain services or conveniences, you may be willing to pay a little extra to get them. Compare the fee schedules at different institutions. Service and Support Are minimum balances required? Must you have one or more direct deposits to waive some fees? Other than paying service fees, if there are any, what else must you do to maintain the relationship you have established with this bank or credit union? In this time of easy access to your accounts over the Internet, can you routinely check your balances online? How user-friendly is their software? And can you readily obtain customer support online or by telephone? On-Time Performance As most financial institutions can open accounts almost immediately, this is not an issue. But if you are transferring accounts to another bank or credit union, this can be a big deal as transferring direct deposits and automatic bill pay services - if you have this feature - can be very time-consuming. Features and Benefits For each institution you are considering, make a list with two columns. On the left, list the features this institution offers. Immediately to the right of those statements, enter how that translates into a benefit for you. If you find no benefit, forget about this feature and move to the next one. Add it all Up Not all financial institutions are created equal and not all will have the features that translate into benefits for you. Recognize that each institution has a right to cover their overhead and, in some cases show a profit. So some of them charge fees. That doesn’t make them bad. But it could make them a less than desirable choice for you. Conduct an analysis and see what makes sense for you.