M: Business 3rd Edition by O. C. Ferrell, Geoffrey Hirt, Linda Ferrell

Exercise 3

Is it time to ditch the bank for the credit union? After the most recent financial crisis led to the closure of several banks, credit unions began looking better and better. Credit unions have several advantages over banks. Because they are nonprofit institutions, and therefore do not have to pay shares or executive salaries, the money that credit unions earn goes back to members in the form of dividends. The lack of pressure to make a profit also allows credit unions to offer more attractive rates on items like CDs, mortgages, credit cards, and car loans. For example, in May 2010 credit unions charged an average 5.73 percent for a four-year new-car loan, while banks charged an average of 6.98 percent.

Some consumers also feel that credit unions offer more quality services, such as taking the time to help customers set up financial plans. Additionally, most credit unions offer free checking and lower penalty fees than banks. With 91.5 million members, credit unions are becoming a popular alternative to traditional banking.

Of course, credit unions have their downsides as well. Unlike banks, consumers must meet requirements to become members of credit unions. Banks also offer more diverse products and services than many credit unions do. Additionally, although credit unions did not require as much of a government bailout as banks did, regulators did have to bail out the wholesale credit union sector. These downsides have led analysts to recommend that consumers carefully investigate financial institutions, be it bank or credit union, before investing. However, for those consumers who constantly get frustrated with their banks, credit unions might be the way to go.

What are the disadvantages of credit unions over banks?

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The major difference between a credit union and a bank is that credit unions are not for profit institutions and serves their customers by paying them dividends. On the contrary, banks are focused on making profits and serves customers with banking services. Despite the flexibility, simple rules and low rates, credit unions are not for everyone.