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Credit Unions vs. Banks

by Jennifer L. Nelson

OK, so it’s not a battle, but the two types of institutions do offer something different depending on what you’re looking for. Here, we examine the benefits of each.

Whether you’re a small business owner in need of capital or a line of credit, or an individual looking to open a checking account or secure a home equity loan, businesses and consumers will find no shortage of options when it comes to institutions that can meet their banking needs in South Jersey.

From the smaller community bank to the credit union to the large national chain, the region is rife with financial institutions that offer similar products and services, from mobile banking to IRAs to credit cards. So how do you determine the right bank for you?

It helps to first understand the differences between banking institutions and what they can offer to both their business and individual customers.

The pros and cons
There are many misconceptions surrounding credit unions, and yet the benefits they offer to members can be extensive. Often defined as a member-owned, nonprofit financial cooperative, credit unions are sometimes mistaken for labor unions, but are actually designed to represent a union of people with a common bond, explains Ellen Kuiper, president and co-CEO of ABCO Federal Credit Union in Rancocas.

According to Kuiper, the concept of a credit union originated in Europe when people didn’t have access to loans through traditional methods, so they pooled their savings and loaned that money to other people within their group. “The idea took hold in the United States during the 1930s, another time of financial crises when money and loans were tight … and over the years, we still adhere to the basic core philosophy of ‘people helping people.’”

The largest credit union in South Jersey, South Jersey Federal Credit Union (FCU), offers shared drafts. “Whether they have $50 in a checking account or $50,000 in IRAs, money market funds and a home equity loan, every member is part-owner of a credit union, no matter how invested they are in terms of a dollar amount,” explains Sandra R. Martin, publicity coordinator of the Deptford-based establishment.

Because of a credit union’s structure, they can typically offer lower rates and more affordable terms than some banks and larger financial institutions, better rates of return on savings accounts, low- or no-fee checking accounts and ATM access, dividends and other service enhancements.

“We’re not beholden to shareholders, making a profit, or improving every quarter,” Martin adds. “And because that helps us keep costs down, the return goes right back to our members in the form of lower rates.” As such, credit unions are run by a volunteer board of directors, elected by members of the credit union. “The board of directors is committed to helping members keep their business going or ensuring a strong and successful financial future,” says Jeanette Mack, manager of corporate communications at Navy Federal Credit Union. “The member’s success is our success.”

However, not everyone is privy to the benefits of a credit union; the organizations are typically open only to those who meet certain criteria, based on factors such as employment or location. Navy Federal is available to members of the armed forces and their families, while Campbell Employees Federal Credit Union, headquartered in Cherry Hill, is currently dedicated to employees of Campbell Soup Company, PHH Mortgage, Pinnacle Foods, Northeast Products and Southeast Products and their immediate family members, though it is open to new business membership. “We believe that we can offer most of the financial services that anyone might need, but because of the way we’re structured, we can do that with lower transaction fees and costs and lower loan rates for our members,” explains David Ardire, president and CEO of Campbell Employees Federal Credit Union.

However, business owners may have to dig a little deeper to find a credit union that can meet their specific banking needs; many don’t offer business lending or are limited in what they can provide. According to Kathie Stone, regional president for Susquehanna Bank in Camden, some credit unions have only started providing commercial lending within the last decade or two, when banks couldn’t provide the access to capital that business owners were seeking.

Members of a credit union can rest assured that their deposits are insured; similar to the FDIC for bank deposits, the National Credit Union Share Insurance Fund, backed by the United States government, insures federally chartered and many state-chartered credit unions up to $250,000. Still, Stone says one of the first factors consumers or businesses should consider when selecting a financial institution is its stability, regardless of whether they’re considering credit unions or banks.

“Security and safety of funds is an important consideration in today’s world,” Kuiper agrees. ABCO, for example, provides additional account insurance to bring the total coverage up to $500,000 per member account. “You want to know how sound your financial institution is, and consider how safe it is for your business or consumer loan,” Stone adds. “Sometimes small business owners and consumers only look at rates, but you have to consider that there has been a lot of merger activity in the last few years, and even though your loan will follow, you may not like the new institution’s customer service or their approach or their more rigid underwriting criteria.”

Wells Fargo’s Brenda Ross-Dulan, executive vice president and regional president for southern New Jersey, notes that the institution is still working to introduce their organization to businesses and consumers after merging with Wachovia. “Every person and every business owner needs to sit back and assess what’s most important to them; for many people, it’s trust,” Ross-Dulan says. “You have to find an institution that you believe has your best interests at heart, believes in you, and understands you as a person … and that has the products, services and capability to execute whatever it is you want to do.”

As the fourth-largest financial services company in the United States with approximately $1.3 trillion in assets, a diversified financial services company like Wells Fargo may have more abundant resources than smaller institutions and credit unions. Their host of consumer and commercial finance products span everything from lines of credit, loans, checking and savings accounts to insurance products, investments, mobile and online banking, and mortgages across some 9,000 branches and 12,000 ATMs.

In today’s economy, financial institutions of all sizes are recognizing the importance of building relationships, and that’s why both large and small banks are focusing on providing community-based services and getting to know their customers on a first-name basis in addition to providing financial products and services. “There can be a different experience between larger and smaller banks … larger banks can tend to focus their products around specific types of consumers, while smaller community banks offer something for everyone,” explains Kimberly Cruz, vice president of Franklin Bank. “Finding a financial partner is an important decision, and consumers and businesses should always look at pricing, but even more importantly, service. When things are going great, no one thinks much about their bank, but when the need arises, a customer should be able to turn to their bank for help and guidance.”

Indeed, many community banks can offer both the breadth of financial services and products of a large institution, as well as the one-on-one relationships and customized service often touted by credit unions. “We offer customers all of the benefits expected from a ‘big bank,’ and the personalized service that can be so rare today,” asserts Rhonda S. Costello, executive vice president at Republic Bank. “We get to know our customers both personally and from a banking standpoint … [that] enables us to give them the type of service they want and help guide them in obtaining the products and services they need.”

“We live and work in the communities we serve, so we get to know our customers and become trusted advisors,” adds George Robostello, southern region president for Fulton Bank of New Jersey. “We can make decisions for our customers locally with people that know the marketplace.”

Making the choice yours
Regardless of whether a business or individual opts for a credit union or a community or large national bank, they all have something to offer. So experts recommend doing your homework—from asking for references from business associates or members of your personal network to conducting online research to compare rates and other services—in order to find the institution that’s right for you. For many South Jerseyans, access to convenient online or mobile banking is among today’s top priorities. “The factors to consider will revolve around what’s important to you: Is it convenience, locations, access, the variety of products?” Robostello concludes.

“The customer is in control, and choosing a banking relationship should always be on your terms.”

Published (and copyrighted) in South Jersey Biz, Volume 2, Issue 2 (February, 2013).
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