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The Honolulu Advertiser
Posted on: Sunday, May 4, 2008

Credit unions' higher rates worth look

By Sandra Block

TIPS TO GET YOU STARTED

If you're interested in joining a credit union:

  • Ask your boss. Your company may sponsor a credit union, or it may be a select employee group, or SEG, with access to a credit union. Many employers offer direct deposit of payroll to your credit union.

  • Poll your family. Most credit unions allow their members' relatives to join.

  • Quiz your neighbors. Some credit unions have a "community" field of membership, serving a region defined by geography rather than by employment or some other association. Ask friends in the community if they know of a credit union you may join.

  • Call the Credit Union National Association. The number is 800-358-5710. You'll hear a message that includes the name and phone number of a person at the credit union league in your state who can help you find a credit union to join.

  • Use CUNA's online credit union locator. It's at www.joinacu.org.

    Source: Credit Union National Association

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    In these uncertain times, some folks aren't comfortable unless their savings are safely ensconced in a bank account that's fully insured by the federal government. And even then, they may get a little anxious if their bank installs new carpeting or repaves its parking lot.

    The trouble with this strategy is that you'd probably earn more money shaking out your sofa cushions than you'd get from the average bank certificate of deposit. Since the Federal Reserve started cutting interest rates in September, CD yields have fallen through the floor. The average rate for a one-year CD was 1.97 percent last week, according to www.Bankrate.com. The average rate for a five-year CD was a feeble 2.77 percent.

    Some banks, though, are offering higher rates, so it pays to shop around. While you're looking, here's something else to consider: credit unions. Rates on credit union CDs, often called share certificates, are often higher than rates on bank CDs. Several credit unions are offering 4 percent or higher for one-year share certificates, according to www.Bankrate.com.

    And you don't have to sacrifice security to get these higher rates. Most credit union accounts are federally insured for up to $100,000, or $250,000 for insured deposits in a retirement account. Joint accounts are treated separately for insurance purposes. So if you and your spouse each has $100,000 deposited in a credit union as individuals, you could also set up a joint account for $200,000, raising your total coverage to $400,000.

    Like federally insured bank deposits, these accounts are backed by the full faith and credit of the U.S. government, says Fred Becker, president of the National Association of Federal Credit Unions. (The only difference is that credit unions are backed by the National Credit Union Administration, while bank deposits are covered by the Federal Deposit Insurance Corp.)

    If a credit union fails, the NCUA will try to find another credit union to take over customer accounts. If that's not possible, the agency will liquidate the credit union and return the money to its members, says Daniel Mica, president of the Credit Union National Association, a trade group. Customers typically receive their money within three days after a credit union closes.

    Many credit unions also offer lower interest rates for credit cards, mortgages and car loans, and their fees for ATM withdrawals and other services are often lower than those charged by banks. Because credit unions are member-owned cooperatives, they don't have to generate profits to placate shareholders, Mica says. Credit unions are also exempt from federal income tax, which reduces their operating costs.

    THE DRAWBACKS

    For all their advantages, there are some drawbacks to credit unions:

  • You must be a member. Walk into just about any bank and, unless you're armed, a bank employee will happily help you open an account. Opening a credit union account requires a bit more effort. You must join a credit union to take advantage of its products and services.

    Many employers sponsor credit unions for their workers. You may also qualify based on membership in a church or professional group, or because you live in a city or county that's served by a credit union.

    Technology Credit Union in San Jose, Calif., for example, is open to anyone who works for a technology firm in California, along with anyone who lives in six counties in the San Francisco Bay Area, says Mike Lukin, a senior vice president.

  • Large banks may offer more services than credit unions. Because most credit unions are smaller than banks, they don't offer as many branches or ATMs and may not provide as many products.

    Credit union advocates argue, though, that technology is allowing credit unions to expand their reach. Many credit unions belong to a cooperative network that lets members use more than 25,000 ATMs — including more than 5,000 in 7-Eleven stores — without paying a fee. Many credit unions also have shared-branch agreements, Lukin says, increasing the number of branches members can use.

  • Not all credit unions are federally insured. Though the majority of credit unions are insured by NCUA, about 160 state-chartered credit unions are covered by private insurance, says John McKechnie, director of public and congressional affairs for the NCUA. They're located in states that allow credit unions to opt for private insurance.

    Also, most privately insured credit unions offer more coverage than federally insured credit unions. However, your deposits won't be protected by the federal government. If that's important to you, look for a credit union that's insured by the NCUA. Credit unions that are covered by federal insurance must display the NCUA logo in their offices.