Lack of interest"I try to pay off my credit cards every month, but in 2007, a payment arrived late," says Heather Murphy, a 43-year-old communications director from Chandler, Ariz.
As a result, Murphy's bank raised her interest rate from around 17% to an "obscene" 23%. Not surprisingly, Murphy contacted the bank to see whether there was a way around the higher rate, but the bank simply pointed to the terms and conditions regarding late payments.
And then it did something else. The bank told her she wasn't their kind of customer.
"The message I received from the bank was that they weren't interested in keeping my business because I didn't keep a rolling balance," she says. "I told them, 'Look at my history, look at all the years and years I've been with you,' and they said, 'Yeah, you typically pay off your balance every month.' I said, 'Yes, I do, isn't that awesome?' and they said, 'No, not really. We make money off of people who don't pay off their bill.'"
Miffed, Murphy talked to a credit union and was told that with her spotless credit history, she would be eligible for a 7.9%-interest-rate credit card.
"After learning that, I was kicking myself for even having a credit relationship with my bank," she says.
Interest was also behind the switch for Kelly Quintanilla, a 27-year-old marketing director from Grand Rapids, Mich., who had been with the same bank since she was 12.
"I stuck with them through high school, college and the early years of my career," she says, but when a local credit union advertised 4%-interest checking account, she switched. "I thought I'd try it since I was earning pretty much no interest on my savings at the bank."
She got her car loan there for a low rate, too.
Big versus littleThere are trade-offs, though, when it comes to switching from a big bank to a cozy credit union.
Michael Hanley, a certified public accountant with more than 300 small-business clients, says credit unions have offered his clients better loan rates and better business practices. (One customer was regularly paying about $1,500 a month in insufficient-fund and bounced-check fees, simply because his bank posted debits first and deposits last, even deposits made first thing in the morning.)
"Their bank statements tend to be fairly archaic," Hanley says. "And their online banking systems tend not to interface with QuickBooks as often as regular banks', so there can be a huge data-entry component."
Others point to a lack of locations as an issue.
"The lack of branches is the biggest problem for me," says Janice Sellers, a 47-year-old office manager from Oakland, Calif., who recently switched to a credit union after suffering a series of "rapacious" bank practices. Parking at her credit union is hard, and the hours don't mesh well with her work schedule.
Still, the pluses seem to outweigh the minuses for many.
"It's smaller, it's more personable, and it's definitely easier to get questions answered," says Washer, who adds that switching to a credit union sooner could have saved her close to $500 in penalty fees. "Plus, for me, it's like the whole 'buy local' thing. Credit unions are doing well in terms of getting local customer loyalty. The financial crisis has just made people look at larger institutions with deserved skepticism."
Published Feb. 23, 2010