By  Thu Feb 9, 2012

Credit Unions Aren’t Always the Perfect Deal

401K / Flickr source

Upset by fee-gouging by some of the nation’s biggest banks, hundreds of thousands of customers turned in frustration to credit unions in late 2011.

Data compiled by MyBankTracker show there can be advantages to such moves — keeping money at a credit union is generally less costly than at a big bank. But some credit unions also have fees that many banks do not charge.

According a survey by Javelin Strategy & Research, 5.6 million U.S. adults broke up with their banks from November 2011 to January 2012.

Bank of America’s now-defunct plans to slap a $5 debit card fee was one catalyst. In addition, consumer advocates declared Nov. 5, 2011, as Bank Transfer Day — urging Americans to move their money out of fee-heavy, traditional banks. Nearly 610,000 customers cited Bank Transfer Day for ditching their banks, according to Javelin.

Furthermore, the “Occupy Wall Street” movement generated widespread distaste for Wall Street and “fat cat bankers.”

Credit unions turned out to be big winners in this anti-banking environment. Credit unions are nonprofit institutions that return profits to members — enabling credit unions to charge lower fees and offer better rates on deposit accounts, credit lines, and loans.

Credit unions signed up 441,000 new members in September and October of 2011, according to the Credit Union National Association.

Here are comparisons of some of the fees charged by the ten largest U.S. banks and credit unions:

Type of Fee Top 10 Banks (Avg.) Top 10 Credit Unions (Avg.)
Non-interest checking monthly fee $9.93 $6.50
Minimum balance to avoid monthly fee $1,626.67 $500.00
ATM withdrawal (out-of-network) $2.20 $0.83
Overdraft item $33.70 $23.40
Returned item $33.70 $23.40
Stop payment $31.90 $19.20
Incoming wire transfer - domestic $14.70 $1.30
Incoming wire transfer - foreign $17.50 $1.30
Outgoing wire transfer - domestic $26.40 $17.25
Outgoing wire transfer - foreign $45.50 $26.95

Free checking thrives

The average monthly service charge for a non-interest checking account at the 10 biggest U.S. banks is $9.93, while it’s only $6.50 at the top 10 credit unions. Nine of the top 10 credit unions offer free checking accounts, with no strings attached, while PNC Bank is the only one that can make that claim among the 10 megabanks.

Since the proposal of the Durbin Amendment, which cut debit card fee interchange revenue, banks have eliminated their free checking accounts in favor of checking accounts that are free only under certain conditions (e.g. having direct deposit or a minimum balance.)

“The notion that they’re ‘free checking’ accounts is misleading,” said Ron Shevlin, a senior analyst at Aite Group.

Moves by banks to impose new fees, such as BofA’s controversial debit card fee, won’t sit well with consumers.

“Banks in particular are looking to restructure pricing to offer checking accounts in packages.” Shevlin said. “Banks have learned that they cannot simply add a fee on an individual action or service.”

Seldom charged fees

Credit unions offer better deals than banks on many common service fees such as overdrafts, insufficient fund occurrences, stop payment requests and wire transfers.

“Credit unions are heavily influenced by their board of directors more so than a bank,” said Shevlin. “They often struggle to maintain profitability because the boards of directors don’t want to raise fees.”

Although credit unions are nonprofits, they aren’t charities. MyBankTracker research shows that some credit unions charge service fees that are higher than those at banks. And on occasion, credit unions charge for services that banks offer for free.

– In July 2011, Bank of America began charging a $5 fee if customers wanted a replacement ATM or debit card. Alliant Credit Union, the seventh largest U.S. credit union by assets, hits members with a $10 debit card replacement fee.

– PNC Bank and BBVA Compass, the sixth and 24th largest U.S. Banks by deposits respectively, imposes a $3 fee for fund transfers performed over the telephone. Alliant charges $10 for the same service.

– Star One Credit Union, the 10th largest U.S. credit union by assets, charges $2 per signature (maximum of $10) for signature guarantees & medallion stamps, which are often required when consumers transfer securities from one institution to another. Big banks don’t charge such a fee to their customers.

There have been plenty of stories where bank customers were startled to see that they were charge for something they assumed was free.

“I can walk into any bank or credit union and ask to see a list of fees,” said Shevlin. “If consumers don’t take the responsibility and accountability to check the fees, it’s their fault.”

As always, consumers are advised to review fee schedules so that they’re not surprised when they have to pay for a particular service.

 

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Add Your 2 Cents

  • Benjamin Lascelle

    Interesting that 610 million people cited bank transfer day for moving to banks, but the population of the US is only 307 million. The information is from Javelin, but there’s no link so you can’t determine if the number is completely bogus or a worldwide statistic.

  • castlefox

    I love Alliant