What's the advantage of a credit union?

September 15, 2008 2:53 PM

Are credit unions more stable than banks?

Like this poster, I have my banking needs taken care of by Washington Mutual. I know they're not going broke; I'm not panicking and I'm not inches away from stashing all my money in a coffee can in my laundry room. The thing is, though, my mortgage is through a credit union, so the thought of switching has crossed my mind. I've been a WaMu customer so long that most of the branches I go to here don't recognize my account number because it's so old, and I'm loath to switch unless there's a clear benefit.

The thing is, though, I just realized I don't know much about the "big financial picture" of credit unions. My gut tells me they're more stable, especially since mine doesn't sell on its mortgages (they've avoided the subprime mess as much as any bank can), but I don't know that for a fact.

Is there anywhere I can verify my hunch, and confirm that the credit union is a better option than a bank, other than calling them and asking, which I would assume result in a guaranteed assurance of stability, since I'm asking as a potential new customer?

posted by pdb to work & money (9 comments total)

Credit unions go bust too, just a different agency cleans up than the FDIC. It looks like they tend to mail out checks within a week of closing, rather than running the place business as usual like the FDIC does with banks. That may be inconvenient if it comes to that.
posted by smackfu at 3:16 PM on September 15, 2008

Bankrate.com's Safe and Sound credit rating system rates banks separately from credit unions, but it does rate both of them. I've recommended it in this space before.

Here is an FDIC list of other companies that rate banks and credit unions. I've not clicked through on any of them.
posted by ikkyu2 at 3:18 PM on September 15, 2008 [3 favorites]

Credit Unions generally don't get caught up in risky investments as banks or S&L's do. The ones I have been a member of have always been well run and looking out for the interests of their members which is not usually the case with huge banks such as Chase.

In these uncertain times it may be better to diversify so that you don't get caught with all your eggs in one basket.
posted by JJ86 at 3:59 PM on September 15, 2008

One major factor that lends stability is that credit unions are owned by their members, while banks are owned by their shareholders.

A borrower under a mortgage is usually pretty safe, unless the mortgage has an adjustable rate or a balloon provision. Think of it this way. You have your house, and they are entitled to nothing more than a payment every month. It's not like a demand note that can be called at any time.

As long as you can perform, you are in good shape. (Whatever the institution, its mortgages will generally remain intact. They will simply be sold to other holders.)
posted by yclipse at 4:05 PM on September 15, 2008

You can also get some financial info directly from the NCUA.

smackfu, what I've heard (anecdotally) is that very often if a credit union is getting into trouble, they get acquired by another CU well before it hits the NCUA.

It's my understanding that most credit unions hold their mortgages and other loans locally, although of course YMMV and you should ask if you're curious.

In general, there's not the same crazy profit pressure because credit unions don't issue stock and are overseen by board of directors (boards of directors?) who are both members and volunteers.

The basic concept of the credit union is impressively democratic IMHO. If you have an account, you're required to keep a small amount in a savings account, representing your share of ownership. Plus you get to vote for the board of directors. Some credit unions have big crazy annual meetings for the membership, too.

I work for a credit union, but this is my personal opinion, not that of my employer. I was also a fan of credit unions long before I worked at one. I am in NO way a financial professional! But because I work at a financial institution, I have to include lots of small print. ;)
posted by epersonae at 4:06 PM on September 15, 2008

ikkyu2 link is excellent, easy to use and with clear, detailed explanations of the methodology used to rate the credit unions.
posted by francesca too at 4:07 PM on September 15, 2008

I thought credit unions were more stable until mine went under. Turns out that overly greedy clowns can do stupid mortgage tricks whether they run a bank or a credit union.

The credit union version of the FDIC stepped in, another local credit union took over all the accounts, and everything went very smoothly from my perspective.
posted by zippy at 4:48 PM on September 15, 2008

No, they are not inherently more stable. It all depends on who is running the place.

I'd posit that, as a class, they could be less stable, because their directors can tend to be less "professional" than regular banks. But that is overridden by the above point.
posted by gjc at 5:51 AM on September 16, 2008

No, overall they are not less or more risky (see above answers) but some are ranked well, others not so much. It simply depends on your CU.

I can tell you what happened when my CU (Cal State 9) failed:
Patelco took over and everything is exactly as it always has been except now I have a few more ATMs and banks where I can make deposits and free withdrawals.

Love my CU, recommend them to friends constantly. Better within the community, higher return on savings and CDs, lower rates on loans (great for cars or homes), and fee or no fees.
posted by unclezeb at 12:53 PM on September 16, 2008