The best little deal in banking

Credit unions offer sweet deals on credit cards and auto loans, the best CD rates in the business and heaps of personalized services. And yes, you too can join one.

By Carolyn Bigda, Money Magazine writer-reporter

(Money Magazine) -- If you belonged to a credit union in the past, it was probably because a volunteer at work or church approached you to let you know about the good deal you could get on a car loan.

Credit unions still offer car loans, they're still tied to affiliation groups, and they still have friendly members looking to let you know about a good deal. But today these not-for-profits are in a pitched battle with big retail banks for all your banking business.

That's good news for you. You'll find credit unions with networks of free ATMs and terrific credit-card deals as well as rates on loans and savings products that the megabanks can't match. A recent study by Informa Research Services found that a higher percentage of credit union members liked their institutions than did bank customers.

And you don't need to belong to a church or work for a company that has a credit union to find one you can join. Not convinced? See if these five reasons change your mind:

Savings: How to earn real money

While large national banks were reluctant to pass on Federal Reserve rate hikes of previous years, credit unions tracked the Fed to offer higher-than-average yields, says Kyle Selberg, CEO of BankingMyWay.com, which follows bank and credit yields.

And when rates dropped in September, credit unions gave up little ground. These days you can still find phenomenal deals on CDs. For example, the Space Age Federal Credit Union in Denver offers a 16-month CD that pays 7 percent through the end of the year (on Jan. 1 the rate converts to 5 percent for the remainder of your CD's term).

And savings-account rates at some credit unions are competitive with those of major online banks. Recently, traditional savings accounts at the American Airlines Federal Credit Union, based in Texas, yielded 4.59 percent, slightly higher than rates at HSBC Direct.

Best deal on a six-month CD: Sabine Federal Credit Union (Orange County, Texas): 5.43 percent

National bank average: 3.45 percent

Credit cards: low rates, low fees, low penalties

Today the average bank credit card charges 13.69 percent, according to Bankrate.com. At credit unions it's 12.16 percent, reports the National Association of Federal Credit Unions.

A 2005 report from the Woodstock Institute, a nonprofit economic development group, found no credit unions practicing "universal default," a much criticized policy in which your lender raises your interest rate if you default on another lender's loan.

Some credit unions won't penalize you with higher rates even when you're late on their own card's bill. If they do, you'll rarely pay more than 18 percent, compared with upwards of 30 percent at major banks.

Auto loans: They're the best-known credit union deals for a reason

You're also more likely to qualify for those low rates, even if your credit history isn't polished or you're a recent graduate just building a credit profile. "We understand that real life happens, so we'll take a look at the whole picture," says Nancy Sieller, loan manager at Torrington Municipal and Teachers Federal Credit Union in Torrington, Conn. "We want to work with you."

Home loans: Financing you aren't likely to get from a bank

Maybe you or your kid wants to buy a home with little or no money down. Well, good luck getting that kind of loan from a bank in the wake of the subprime mortgage collapse.

Some of the largest credit unions, though, now offer what's called the Home Loan Payment Relief (HLPR) mortgage. It finances 97 percent or more of the cost of a home and is available to home buyers with limited income and, increasingly, to those looking to refinance out of an adjustable-rate mortgage.

If you're putting the standard 20 percent down, you'll get an interest rate that's as good as you'd find at a bank, and borrowers may also save on extraneous fees.

Perks: Take a class, get a deal on kids' savings

Many credit unions extend their services far beyond basic banking. You might find free personal-finance classes for your teen or complimentary retirement and credit counseling programs.

The McGraw-Hill Employees Federal Credit Union in New York City and New Jersey, for example, provides furlough loans to members who lose jobs and lets them defer payments for up to three months.

Some credit unions, including Achieve Financial Credit Union in Connecticut, will comb through a credit report with you and suggest how to improve your score.

And many offer kids' financial literacy tools and special savings rates: Youth CDs, for instance, often carry the same yields as their adult version but require lower minimum balances and give kids the opportunity to make additional deposits during the CD's term.


Your big questions answered

Question: Can I really join a credit union?
Answer: Thanks to 1998 legislation loosening membership restrictions, chances are better than ever that you can. Now you just have to figure out where you're eligible.

Step 1 Ask your mom and dad (and your grandparents...). If someone in your family is a member, you often qualify to join as well.

Step 2 Find out if your employer, trade group, alma mater or church is affiliated with a credit union. If you're a pharmacist in Pennsylvania, for example, you can join the Pennsylvania State Employees Credit Union.

Step 3 Still nothing? Time to check out the online databases: Go to the credit union locators at ncua.gov and creditunion.coop. Based on information such as your location, religion and ethnic background, you'll get a list of credit unions you might be able to join. Click on each credit union's Web site to learn the specifics.

Question: Should I ditch my bank?
Answer: It's worth considering if the credit union is a member of a large, free, nationwide ATM network such as the Co-op Network, which includes 25,000 ATMs (vs. 17,000 for Bank of America), and it has online banking too.

But many credit unions still can't match the big banks when it comes to the breadth of financial products or their services (like late branch hours). Combining your credit union membership with a checking account at a regular bank will probably offer you the best of both worlds.