Differences between banks, credit unions are blurring

By Ieva M. Augstums
The Dallas Morning News

Steve Middlebrook says he will not open an account at a bank. High-quality service, better rates and low fees have kept the 43-year-old Dallas businessman at Community Credit Union in Richardson, Texas, since he was in high school.

Gerald Hays, on the other hand, has never really given much thought to joining a credit union. The 61-year-old Duncanville, Texas, resident says his banks offer more products and are more convenient than a credit union. He is a customer of Bank One, Bank of America and Inwood National Bank.

Banks and credit unions compete intently for customers.

But in the end, is one type of financial institution that much better than the other?

Not really, experts say. As credit unions try to be more full-service and banks try to be more customer-friendly, differences are narrowing. At both institutions, you can get anything from car loans to mortgages to basic checking and savings accounts.

To understand the pros and cons of a bank versus a credit union, you have to understand how the two institutions are structured.

Credit unions are cooperatives owned by the members they serve. In essence, members pool their money and make loans to one another. There are membership restrictions, such as working for specific employers. This keeps credit unions relatively small.

The primary function of banks is to earn profit for their owners. They can grow about as large as they want.

Credit unions are nonprofit institutions, so they pay no corporate income taxes. For that reason, credit unions are generally able to offer better interest rates than banks.

Credit unions lay claim to only a small portion of the U.S. financial services market — about 6.3 percent of the total assets of banks and thrifts.

But lately they have been trying to gain more customers by offering a broader range of products.

The boundaries around credit-union eligibility have evolved since the first American credit union was founded in the early 1900s, when membership was predominantly based on an individual's place of employment.

Today, membership criteria can be geographic, social, civic, professional or even religious.

But the small size of credit unions leads to the biggest argument against them: limited access. That is especially important for ATM users, who usually are hit with annoying fees whenever they use someone else's ATM.

"Not everyone shops on rate alone," says John Hall, spokesman with the American Bankers Association, an industry trade group.

Some people may prefer a package of services offered by a big bank. Those who have a lot of business transactions or are of great means may be better off at a bank, while someone building credit for the first time might benefit from a credit-union membership.

Middlebrook says he is happy with the services he receives at Community Credit Union but says he would be happier if there were a branch near him. The closest is in Addison, Texas.

Hays says he prefers the convenience provided by the many branches of his banks.

But more branches do not necessarily mean better customer service. Many customers complain that large banks can give the impression you are known not by your name, but by your account number.

But in the end, a small community bank can be nearly indistinguishable from a small community credit union.

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