Bank-bashing is the thing to do these days, but some people still want the comfort and security of having their money in a financial institution.
I recently received a query from a reader who was looking for a financial institution and wanted to know the difference between a bank and a credit union. While they are similar, there are significant differences:
—A bank is a for-profit company owned by its stockholders.
—A credit union is a nonprofit, cooperative financial institution owned and run by its members.
In a credit union, members pool their funds to make loans to one another, and the volunteer board that runs each credit union is elected by the members. Whether you select a bank or a credit union, there are key questions you should ask when shopping around.
WHAT DO YOU NEED?
Will you just need plain-vanilla checking and savings accounts or services and products for business owners as well? "If you're a small businessman, you might go to a bank that specializes in the industry you're in," said S. Scott Macdonald, president and chief executive of the SW Graduate School of Banking Foundation at Southern Methodist University.
Dick Ensweiler, president of the Texas Credit Union League, added, "I would ask about what the scope of the services are. Not all credit unions offer the same mix of services. Some may not offer debit cards because they're not big enough. Most of the larger ones would have that."
HOW ARE YOU TREATED?
Does the institution treat you with respect? Do its workers greet you by name and express appreciation for your business? That's all well and good, but it's not what shows an institution's character. The test comes when there's an error in your account or a similar wrinkle.
If you have a grievance, will a customer service representative listen to your concerns and try to resolve the situation without bouncing you from department to department?
How well-trained and how empowered are the employees to solve issues at the customer level before sending you to someone higher up the food chain?
Does the institution follow up with you to ensure that you're fully informed at every stage of your situation?
Banks are under siege these days, and it's in their best interest to go that extra mile to show you that you're not just another account number.
HOW CLOSE IS IT?
Ask yourself how important the proximity of branches to your home will be. Will you visit a branch often or will you mainly conduct your business online?
Does the institution have reasonable hours? Does it have a vast network of ATMs?
Knowing how you will use the financial institution will help you decide which one fits you best.
WHAT ARE THE FEES?
Comparison-shop for financial services just like you would anything else.
If you're shopping for a credit card or another type of loan, compare its annual percentage rate, which is the cost of credit expressed as a yearly rate, including interest and certain fees.
"Many people looking for a loan only focus on the dollars they'd pay each month instead of the APR and, because of that, they don't realize how much the loan will cost and they could pay too much," said Rae-Ann Miller, special adviser on consumer issues in the Federal Deposit Insurance Corp.'s research division.
Similarly, when you consider opening checking and savings accounts, compare the annual percentage yields offered by several financial institutions.
The APY expresses the interest you will earn on a deposit account, depending on the frequency of compounding.
However, keep in mind that fees — such as those for ATM withdrawals, account maintenance and checks returned because of insufficient funds — aren't factored into the APY. Fees can make a big difference in how much you actually earn from money you deposit.
Because of their nonprofit status, credit unions generally offer higher savings rates and lower loan rates than banks do. The banks argue that's because credit unions don't pay corporate income tax.
One note about interest-bearing checking accounts: They typically have high minimum balance requirements and will slap you with a hefty monthly service charge if your balance falls below the minimum.
In return, you get next to nothing. The average yield on an interest-bearing checking account in 2009 was 0.12 percent, down from 0.24 percent in 2008, according to Bankrate.com.
Find out if the institution bundles various products or services so that if you bought that bundle, you'd pay less than if you purchased each product or service on its own.
Also ask whether the financial institution will let you combine your checking, savings, CD, investment, credit card, loan and mortgage balances to avoid a monthly service fee.
And make sure you know if the financial institution imposes a fee if you use another institution's ATM. Will your bank reimburse you for fees you pay for using another bank's ATM?
IS IT PART OF A NETWORK?
Is the credit union you're considering a member of a shared branching network?
Because credit unions typically serve a certain community, they generally don't have as vast a network of branches as a large bank has.
But if the credit union is a member of a shared branching network, you can conduct basic teller transactions in person at a location other than your home credit union.
As with anything that involves your money, you want to be comfortable that the financial institution you deal with will take good care of your cash. So do your homework and make financial institutions compete for your money.
THINGS TO CHECK OUT
Some questions to ask before choosing a financial institution:
—What services and products do you need? Will you need just checking and savings accounts or will you need services and products for a business as well?
—How important is the proximity of branches to your home? Will you visit a branch often or will you mainly conduct your business online?
—What are the fees for bounced checks and other services and products?
—Will the institution let you combine your checking, savings, CD, investment, credit card, loan and mortgage balances to avoid a monthly service fee?
—Will the institution give you a break on a loan if you're a member of a certain customer tier, such as someone with a high-end checking account?
—Will you be charged a fee if you use another institution's ATM?
Source: McClatchy-Tribune Information Services.