Credit Union or Bank


Those in the know have always understood that credit unions offer the best banking deals around. But to get in on them, you have to become a member.

Once upon a time, members had to be closely connected in some way, either by where they worked, where they lived, or where they worshipped. Over the last two decades, however, regulators have loosened many of the membership restrictions. As a result, credit unions have been opening more branches and offering more products. Since 1996, membership has grown from 71 million to about 89 million today. If you haven't been eligible to join before, you might be now.

Switching from a bank can really pay off. In January, for example, credit unions paid an average annual interest rate of 1.9 percent on money-market accounts, while banks paid only 1.2 percent, according to Datatrac, a market research company that surveys rates. For a four-year new-car loan, banks charged 7.6 percent a year on average, while the average rate at credit unions was only 6.2 percent. Credit unions can offer those choice rates because Congress exempted them from federal income taxes in 1937. Most states exempt them from state taxes as well.

In 1982, the National Credit Union Administration (NCUA), the government agency that regulates credit unions, allowed them to begin serving groups with common bonds--for example, workers who have different employers but work in the same industry could band (and bank) together. Then in 1998, Congress passed a bill that allowed credit unions to cover large geographic areas, rather than just local communities, and allowed groups to extend membership to family members. The Mutual Security Credit Union in Wilton, Conn., for example, is open to residents of two counties, members of their families, and employees and retirees of 76 corporations in the area.

Similarly, credit unions have broadened product lines. Though they once provided only savings accounts and short-term loans, most now offer the same products and services you can find at your bank, including home-equity loans, checking accounts, certificates of deposit, and life insurance. All federally chartered credit unions and more than 95 percent of state-chartered ones have federal deposit insurance through the NCUA that protects accounts up to $100,000. "All credit unions are extremely safe. No member has ever lost a penny," says Mike Hales, president of Counter Intelligence, an Overland Park, Kan., credit-union consulting firm. "The few credit unions that do not offer federal insurance have private insurance instead that usually covers accounts to a higher amount, typically $250,000."

Credit unions' expansion onto banks' turf has irked the American Bankers Association, which believes that credit unions' tax-free status gives them an unfair competitive advantage. The group has been lobbying hard to strip credit unions of their tax-free status. Unless or until that changes, however, you can take advantage of credit unions' superior rates. Here's how to find one that you can join:

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