Should You Join the Credit Union Boom?

PHOTO: Among the nations largest credit unions, 80 percent offer stand-alone free checking accounts.
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Business is booming at credit unions as consumers flee the high fees and low yields at traditional banks, but experts say comparison shopping is vital before switching and there may not necessarily be a credit union for everyone.

As a result of Bank Transfer Day, in which consumers were encouraged to switch to credit unions, 54 percent of credit unions reported an increase in share growth, according to a survey from the National Association of Federal Credit Unions sent to 10,000 respondents.

At least 650,000 people have switched to credit unions since Sept. 29, according to the Credit Union National Association, after Bank of America announced plans to charge a $5 debit card purchase fee next year. The bank announced it was canceling the fee last week.

About 80 percent of credit unions offer at least one free checking account with no minimum balance requirement and no monthly or activity fee, according to Moebs Services. About 64 percent of the largest U.S. banks offer the same, according to Moebs.

Bankrate.com's 2011 Credit Union Checking Survey lists a dozen credit unions of the largest 50 had monthly service fees, though the majority of those dozen waive those fees with policies such as a minimum balance or direct deposit.

Pentagon Federal Credit Union, for those serving in the military and one of the largest credit unions in the country, is an an example of a credit union that charges some of the highest fees. It charges a $10 monthly fee unless a customer utilizes direct deposit with $500 minimum monthly net pay or the checking account has a daily minimum balance of $500.

Credit unions can help consumers save money because they are non-profit, and can pay higher interest rates on savings accounts, and offer lower loan and credit card rates. The median annual fee for credit cards is $25 for credit unions and $59 for banks, and their respective overdraft transfer fees are $6 and $10, according to the Pew Charitable Trusts in May 2011.

But savers should take steps before transferring to a credit union, including researching which charge fees or require minimum balances.

Tim Chen, founder of NerdWallet.com, said it is very difficult to generalize about the diverse range of credit unions. But for many, membership eligibility may be restricted by your employer or geographic location.

The world's largest credit union by assets, Navy Federal Credit Union, for example, is restricted to military personnel and their family members. Navy Federal has nearly $45 billion in assets and 3.7 million members since the second quarter of 2011.

Chen said he is an advocate of credit unions more than community banks because the former are not-for-profit organizations that give customers a greater voice. Of the 7,400 state and federally chartered credit unions, most are relatively small, with under $100 million in assets and a few branches. Only about 500 have multiple branches, Chen said.

While convenience of ATM locations may be a cause for concern, many credit unions are a part of larger networks that allow wider ATM useage. Credit unions can be members of large ATM networks, such as Allpoint, which calls itself "America's largest surcharge-free ATM network" with 43,000 surcharge-free ATMs worldwide, including in all 50 states. The company says it owns one out of 12 ATMs in the country. Co-op Network has 28,000 ATMs in the U.S. and Canada. MoneyPass, which says it owns "tens of thousands" of ATMs, is another network popular with credit unions, said Chen.

By comparison, Bank of America says it has more than 18,000 ATMs while Chase Bank has 16,708 ATMs in the U.S.

Frank Sorrentino III, CEO of North Jersey Community bank, said credit unions "aren't necessarily the best place for people to keep their money."

"Not all credit unions are alike - some of them do charge fees despite their claims otherwise," he said.

Sorrentino said North Jersey Community Bank offers free checking without minimum balance requirements and ATM or debit card fees.

Greg McBride, senior financial analyst with Bankrate.com, said both credit unions and community banks are "viable alternatives" to large banks. But consumers should research the best for their financial situation, including staying at your current bank.

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