One of the great things about living in the times that we live in is the amount of options we have for anything we need. Hungry? Google will show you all of the restaurants around you. Need it delivered? There are about 30 apps for that. Sometimes, the amount of options can be a little overwhelming, but having these options benefits us by keeping the prices low so businesses can stay competitive.
Take auto insurance for example. If you have two different auto insurance companies offering the same coverage on your vehicle you’re going to choose the one that is going to cost you the least and the more expensive company will either need to bring their price down or add more coverage to give it more value. This is why you should do some research on your auto insurance to ensure that you are getting the best bang for your buck. The same is true for where you keep your money.
I have typically always belonged to a bank, but since starting at a Credit Union Services Organization, I’ve learned more about what credit unions have to offer and wondered if I was missing a better deal. After a year in the industry, I finally decided to take the plunge and discover if credit unions really were better than banks for my financial needs.
Where I am currently
At the moment, I keep most of my money in two different banks. I used to have an account at Bank A with two checking accounts and a savings account. I liked the idea of having two separate checking accounts for different purposes. (I’ll keep the identities of the institutions a mystery, though with a little sleuthing you can probably guess.) The downside is that they were connected, and I could easily transfer funds from one account to the other including my savings.
So, to counter my impulsivity, I closed the one of the checking accounts and the savings account, but I kept the second checking and opened a separate checking and savings account with Bank B. Now, I can set up my direct deposit to place funds in my one account for gas, groceries, and miscellaneous spending, my second checking for monthly bills to draw from, and the rest in Bank B’s savings account.
I chose Bank B because they are a bank without “brick and mortar” locations. Without the overhead of maintaining those locations, they can offer a higher yield on their savings accounts. At the time of writing, this is 4.3% APY without a minimum balance. Also, it has the added benefit of keeping these funds out of reach for when I’m being impulsive but not too far in case of unforeseen expenditures like vehicle repairs.
As I mentioned previously, I don’t currently have any credit union accounts, but I’m willing to make the switch if one turns out to be the right fit.
Finding the right fit
So, let’s get to the meat and potatoes of this article and take a look at some options. Since I am trying to figure out if I should switch to a credit union from a bank, I thought it’d be best to do this by comparing two examples of each.
To keep it simple, I am going to base my comparisons on personal checking and savings accounts between banks and credit unions. I know that some CDs are earning more than 5% at certain institutions but I’m assuming I don’t have to open a separate account to take advantage of that.
Instead of choosing random institutions, I decided that it would be more realistic if I compared the banks and credit unions that I currently use and what my friends and family use. I figured most people make these decisions by having conversations with the people they trust the most. In fact, the number one marketing tool for credit unions is still word of mouth.
For the banks, I am going to take a look at Bank C and Bank A. Bank C is where my parents first opened an account for me because that was where they banked. It is the most prominent bank where I grew up and it is still where most of my family banks. Bank A is one of the banks that I am a current member of. One of their products in particular caught my eye, so I decided to make a switch a few years ago.
This bank has two options for checking accounts. One has no minimum balance required to open and offers no interest. You can earn a bonus of up to $600 if certain criteria are met.
Their other type of account does offer interest on the account up to $500 a year based on a minimum daily balance of $10,000 and 46 debit card swipes per month. This account also offers a bonus of up to $600 if the same certain criteria are met.
One of Bank C’s savings accounts has a tiered interest rate where you can earn up to 1.10% APY. For brevity, I will not list all of the tiers but to get the 1.10% you will need a minimum of $250,000 in your account. Unfortunately, I will probably never have that much in my savings account. (Maybe someday I will prove myself wrong.)
Bank A has a product with three different levels. Each level contains two checking accounts and a savings account. Each level has a bonus of $100, $200, and $400 respectively.
They each have a monthly service charge ranging from $7 to $25 but this will be waived if you meet their criteria on direct deposit and/or combined balance between the two checking accounts.
One checking account does not offer any interest on any balance but the other account offers a 0.01% APY on any balance of $1 or above.
The savings account offers 0.01% APY on any amount $1 or above regardless of which level. However, if you have enough money deposited with direct deposit or use your debit card enough times you will earn better rates. Depending on the balance you have in your account you can get an APY of 0.02% to 1.30%.
Comparing credit unions
For credit unions, I’ll be comparing two of the more popular institutions in my area, Credit Union A and Credit Union B. Both have a large presence in my city and would be my ideal choice when looking to switch financial institutions.
Credit Union A
Credit Union A has two personal checking accounts. Their free checking account offers no interest on the balance, but it has no minimum balance requirements and no monthly fee.
Their most popular checking account has no minimum balance, no monthly fees, and an interest rate of 3% APY for balances up to $15,000.
Their savings account can be opened up with a minimum of $5, you won’t be charged a monthly fee if you can keep a minimum balance of $300. The savings account isn’t a tiered account so you will have 0.10% APY regardless of the balance.
You can open up a separate savings account without a minimum deposit and it earns a tiered interest rate. Starting at a balance of $100 you can earn from .10% to 2.25%.
Credit Union B
Credit Union B has a couple of options when it comes to checking. Their traditional checking account has no minimum balance, but it doesn’t earn any interest. However, they do have four tiers of their money market account where you can earn an interest of 1.25% to 1.50% APY starting at a minimum balance of $2000.
One of their savings account options has no minimum balance and will earn you an interest rate of 0.05% APY.
Another option is divided into three tiers. The first tier will earn you 3.75% up to $999, but from $1,000 to $1,999, you can earn 2.50% to 3.75%, and the third tier 1.3 to 2.5% if you go $2000 or above.
At first, I thought this was weird since I’m used to seeing rates go up as the minimum balance gets higher, but then I noticed the superscript that pointed to a footnote further down on the page explaining that the rates progress with your balance amount. You will earn 3.75% on the first thousand, 2.5% to 3.75% on the next, and 1.3 to 2.5 on anything $2000 or above.
So, should I make the change?
Considering what the two banks and credit unions have to offer it appears that credit unions offer higher rates on their checking accounts and their savings accounts, even on the lower tiers. For most, changing financial institutions would make sense.
However, my checking accounts aren’t meant to keep money in them. They dip below zero sometimes if I forget about tips when I go out or a charge that doesn’t get batched right away. (It happens, don’t judge me!) But Bank A doesn’t charge me any overdraft fees as long as I don’t make any purchases while I am in overdraft. I don’t because, when it does happen it’s usually just before payday and I have to suffer with a little less money until the next payday. Not a big deal.
The two credit unions, on the other hand, both charge $30 overdraft fees and have “no limit on the total fees [they] can charge you for overdrawing your account.” Considering how I tend to manage my account, this was obviously very concerning and was a major incentive to stay where I am.
Additionally, because I keep little money in my checking accounts, I don’t see a need to take advantage of a checking that earns an interest rate. Even the 3% I would earn with a checking account with Credit Union A I would only make a few bucks a year.
I am currently earning 4.3% APY with Bank B for my savings, and the rate doesn’t drop based on your balance. The closest one from the institutions above is the 3.75% at Credit Union B, but the rate drops for every one thousand dollars that you have in the account. To reach the higher rate tiers with the other three, you will need to have a pretty high balance. At least one of them had a minimum of $1,000,000 in order to reach that higher rate tier.
Maybe one day
Banking at a credit union would benefit most people when looking at their higher interest rates based on the examples I used above. But considering my needs when it comes to managing my finances, I feel it is in my best “interest” (see what I did there) to keep my money where it is. However, should something change—perhaps credit unions start to lose the overdraft fees—I’d be open to reconsidering. Though this may be an unpopular conclusion, it’s one many other Americans might make, and unlike me, they may not have a vested interest in the success of credit unions. So what might credit unions be missing in the marketing or the offerings that could push us to make the switch? Let me know in the comments.