Issue #45: Here's why credit union members have no chill

It’s in their DNA. In fact, American credit unions have their roots in a grave financial crisis. (Sound familiar?) Carrie Birkhofer, the president and CEO of Bay Federal Credit Union in California, told me that around the Great Depression, banks often would turn away borrowers seeking small-dollar loans because they weren’t profitable. So people began to do it themselves. A group might get together at the office, for example, and raise $100 to lend to a colleague, knowing that he’d pay them back as soon as he could.

The system was formalized in 1934. FDR signed the Federal Credit Union Act “to make more available to people of small means credit for provident purposes through a national system of cooperative credit,” according to the law’s text.

At credit unions, customers are usually referred to as “members” because they technically own part of the institution. They can run for the board of directors, and in some cases, they even get paid dividends.

“We don’t have shareholders demanding a market rate of return on investments, so we take the profits that would go to shareholders and we pass that through to member-owners,” Schenk says, listing off benefits like lower fees, higher savings yields and favorable interest rates. “We’re just as good, and actually better than, the other guys.”

These benefits lead to good relations between credit unions and their members. Schenk provided a stat from a January survey that found consumers are two times more likely to agree strongly that credit unions “act in consumers’ best interests and are good corporate citizens” than to give the same answer about banks.

That can be especially important in times of crisis. 

“If you look back at any natural disaster, government shutdown and now during coronavirus, credit unions have always been there for their people — even before the government or the Fed asks them to be,” says Jaqueline Ramsay, a spokeswoman for the National Association of Federally-Insured Credit Unions. ”They don’t wait for a regulatory policy or a call from a congressperson on the Hill to say, ‘Hey, I need you to help the people.’ They already have plans in place.”

And people take notice: Credit union membership increased 31% in the decade following the Great Recession.

This all sounded great, but also too good to be true. So I pressed my sources to talk about the drawbacks of joining a credit union. They reluctantly brought up a few possible cons.

The biggest challenge seems to be the fact that credit unions have somewhat limited fields of membership, meaning I have to be working in a certain field, located in a certain area or associated with a certain company in order to qualify. The largest American credit union, for instance, is Navy Federal, which serves members of the armed forces and the Department of Defense, veterans and their families. 

Finding one I meet the requirements for may take “a little bit of research,” Birkhofer says. There are more than 5,000 credit unions in the U.S.

The other issue with credit unions has to do with their size. 

Because they’re generally smaller than, say, Wells Fargo or Bank of America, they simply can’t have millions of branches and ATMs on every block. Credit unions collaborate with each other, so I’ll almost definitely be able to find a location close to me… but there’s no guarantee on how close it’ll be. If I need cash and can’t find a participating ATM, I might have to pay a fee.

(but please don't tell me you scrolled past all of my hard work)

Credit unions are similar to banks in the services they offer. They have a feel-good mission that people love — and some tangible money benefits. They’re not perfect, but then again, neither is my bank.

If I want to join one, I should look into what I’m eligible for. Sites like yourmoneyfurther.com can help me figure it out. If all goes well, I might just end up being a fan of my financial institution.

“Credit unions are, for those that haven’t discovered it, the best-kept secret,” Birkhofer says.

via GIPHY

check out this crazy celebrity purchase

via Getty 

Game of Thrones author George R.R. Martin and two pals recently bought an 18-mile section of railroad and trains in New Mexico. Nobody will say how much they paid, but one of the buyers said it’ll cost “millions” to repair. (The purchase was initially devised by the trio over a pitcher of margaritas, as all good ideas are.) Martin and his railroad co-owners plan to revitalize the track, bridges and train cars with attractions like an escape room and speakeasy. They’re also considering a Christmas village, presumably for when winter is coming.

five things I'm loving online right now

send me cute pictures of your pets, please

CREDIT: KATIE UTKEN

This is Oliver, a cat who lives in Indianapolis. He is a member of his local purredit union.

Stay safe. Love you guys.

See you next week.

Julia

P.S. Last issue on saving for a house inspired some amazing replies. Scholar Brian told me he and his wife have bought/sold several houses, making six-figure gains (!). Scholar Maggie just started looking for a home, and she says she wish she'd saved more — the down payment, closing costs and moving expenses are adding up already. Scholar John recommended moving to the Midwest as opposed to trying to buy property in NYC. Finally, Scholar Smith spent 10 years saving for a down payment, whereas Scholar Kevin did it in three.

P.P.S. Do you belong to a credit union? What are you a big fan of? Have you seen any good resources on race? Dolla Scholla holla at your girl by emailing julia.glum@money.com or @SuperJulia.