Beating The Banks
In addition to free or lowcost checking accounts-- called share-draft accounts in credit union lingo--credit unions also offer low-interest loans and high-interest savings accounts. And, perhaps even more important considering the turmoil of today's financial markets, credit union deposits are insured by the federal government.
"Credit unions are the only financial institutions that have come through the last 10 years in good shape,'' says Jerry Karbon of the Credit Union National Association. Unlike banks and savings and loans, which got mixed up with lending money to Third World countries and making longterm real-estate and commercialdevelopment loans, credit unions kept their money close to home, making relatively small--and relatively safe-- loans to individual members.
The distinction between banks and credit unions boils down to a fundamental difference in philosophy: Banks are in business to make money, and credit unions are in business to serve their members. Credit unions are cooperative, tax-exempt, nonprofit organizations. Members share a common bond; most members in the nation's 1,400 education credit unions are teachers, administrators, and other school-system employees. Members actually own their credit unions. They elect the board of directors, and all profits are returned to members as dividends.
Despite the nonprofit status, credit union deposits are every bit as secure as bank deposits. Almost all are insured for $100,000 per account, the same as bank deposits at institutions backed by the Federal Deposit Insurance Corporation. All federally chartered credit unions must carry insurance from the National Credit Union Share Insurance Fund. Most statechartered credit unions are backed by the same fund, but some carry private insurance. Only seven of the nation's 15,000 credit unions are uninsured. "To my knowledge, no teacher has ever lost a cent from the failing of a credit union,'' says Lorraine Webster, executive director of the Education Credit Union Council.
Teachers don't have to sacrifice savings income for security. In fact, credit unions tend to pay higher interest rates on deposits and charge lower interest rates on loans than banks. For example, in May 1990, credit unions charged an average of 11 percent for a new car loan, compared with 11.8 percent from a bank or 12.2 percent from an autofinance company.
Many teachers find it easier to qualify for a loan from a credit union. Credit unions were established to combat usurious interest rates and to enable members who were turned down for loans by banks to borrow money. In some cases, the credit-committee members personally know the loan applicants, so unusual circumstance--such as an illness that caused a late mortgage payment--can be explained and forgiven.
Teachers also find the repayment procedure at credit unions convenient because most use payroll deduction, in which a specified portion of a teacher's take-home pay is automatically deducted to repay a loan. About 95 percent of all credit union members have access to this practice.
"I think payroll deduction is a great convenience,'' says Anne Stevenson, a media specialist at Gretchen Everhart School in Tallahassee, Fla. "I couldn't get that kind of service from a bank.'' Stevenson has been a loyal member of the Northern Florida Education Credit Union for about 20 years.
With so much to offer, why would any teacher choose to use a bank? Because banks sometimes offer services that credit unions don't. In the past decade, however, credit unions have expanded their service to the point that many offer the same products as a full-service bank or savings and loan. Available to members are credit and debit cards, first mortgages and home-equity loans, traveler's checks, IRAs, access to automaticteller machines, safe-deposit boxes, and interest-bearing checking accounts, in addition to the usual mix of savings accounts and consumer loans. As a rule, teachers' credit unions are somewhat larger than the typical credit union--the average education credit union has $14.2 million in assets--so they tend to offer a wider variety of financial products and services. Many are large enough to support several branches in a given area.
In fact, credit unions have given banks such a run for their money that the banking industry has launched a campaign to restrict credit union operations. The banking industry claims that credit unions have an unfair advantage because of their taxexempt status and because many have very loose membership requirements. (For example, membership in the Northern Florida Education Credit Union is open to teachers and all employees of the Leon County School System--and anyone with children attending school in Leon County.) Credit unions argue that they're beating banks at their own game and that they should be free to address the needs of their members.
"When it comes to credit unions, the most important issue is service and benefits,'' says Ella Robinson, supervisor of credit unions in Kentucky. "The money is safe in both banks and credit unions, but credit unions offer better service. They're not out to make a profit, they're out to meet customers' needs.''
For more information on credit unions, talk to your school administrators or teachers' union representatives. If you don't have a teachers' credit union nearby, contact the Credit Union League in your state (listed in the Yellow Pages) and ask if you qualify for membership in another one.