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Fools and Their Money - Picking A Mattress

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If you object to the big bonus money being handed out on Wall Street and especially to all the bankers who took our government money and made tons of money by investing in the companies and smaller banks which were driven to the brink of bankruptcy by the big banks, you might want to vote against big banks.

Just how do you "vote" against a bank? Simple, instead of putting your money in some risky place such as under a mattress, or in Bank of America, you can use a credit union or other small bank.

If you don't mind ever-increasing fees, or seeing your savings being used to contribute to politician's campaign funds to influence anti-consumer laws, or paying for skyscrapers, or being loaned to big companies who are laying off the few of your neighbors who still have good jobs, then, by all means, stay with the big banks.

But if you want lower fees and putting your money where there is at least a chance your money reinvested in your community, or in a local business which might grow and hire more people (such as your neighbor or your spouse), then consider moving your money to one of the remaining independent banks, or a credit union.

Let's consider credit unions first.

Just what is the difference between a credit union and a bank? When you understand the most basic difference it should be clear why most people should use credit unions instead of banks.

Banks are for-profit - private companies owned by stockholders and working to make money for them.

Banks are controlled by paid (very highly paid) boards of directors who are either famous or rich.

Credit unions are non-profit.

Credit unions are owned by those who have accounts in the CU. After salaries and modest expenses the money left over is used to pay higher savings rates and reduce loan rates.

Most credit unions are managed by unpaid volunteer boards elected by the depositors.

Can you begin to see why a credit union might be more interested in helping small depositors?

It turns out that credit unions almost always pay higher rates on savings, charge lower fees for transactions, and offer loans to members at lower rates than traditional banks.

The only argument you hear against credit unions is that they don't offer FDIC insurance.

That's true, but, as with most arguments against the public interest these days, it is a half truth at best.

FDIC is just an insurance policy - if enough banks fail at once it will run out of money and the government may or MAY NOT choose to add more money to the fund - it isn't obligated to do so.

Most credit unions, on the other hand, have NCUSIF or NCUA credit union insurance which is backed by the U.S. Treasury "the National Credit Union Share Insurance Fund (NCUSIF), a federal fund backed by the full faith and credit of the United States government."

The key words are "full faith and credit" because it means the government is obligated by law to pay the insurance claims. Before NCUA goes broke repaying account holders the Treasury will fire up the printing press just as it does for the Federal Government.

You might wonder the reason this happens but it could be because most government employees have accounts at credit unions.

Congress has several available. Postmasters have one (NAPUS). The State Department has one (SDFCU). And even the CIA has one, although if I were to tell you what it is called I'd have to kill you.

Don't know how to find a credit union?

Here is a web site which will help you locate one you can join.

http://www.creditunion.coop/cu_locator/quickfind.php

I don't know of and never heard of any actual good reason for the average person to keep money in a big bank when they could become a member of a credit union instead.

Certainly I know why rich people prefer to OWN shares in big banks - they make lots of money, but I don't know why even they would want to keep all their money in the same banks.

For a quick comparison of national average rates between banks and credit unions, check out

http://www.creditunion.coop/ratedex.php

CU Avg. Bank Avg.
Savings 0.4% 0.28%
Money Mkt. 0.73% 0.46%
Credit Card 11.65% 12.81%
Etc.

But the really important savings come when you compare individual fees which keep going up at big banks seemingly every week. Even credit card fees charged by credit unions are normally lower.

For example, does your bank charge an ATM fee? Perhaps $1.50 or even $2 just to get your OWN money? My Federal Credit Union doesn't charge an ATM access fee and extends that free access to 20,000 CO-OP member network ATMs owned by other credit unions.

The simple take-away fact is that banks are run for the benefit of the shareholders - that is their obligation under law (called a fiduciary responsibility) - mostly their management and board.

Credit unions are run for the benefit of members - that's why their rates are almost always more beneficial to savers and borrowers and perhaps explains why they don't have gigantic buildings and expensive marble-laden lobbies.

But think for yourself - would you rather put your money in a CU working for you, or in a Bank working for Wall Street?

Small local banks are another story I will look at later - they are better than big banks, but not as good for depositors as credit unions.

John McCormick is a reporter, /science/medical columnist and finance and social commentator, with 17,000+ bylined stories. Contact John through NewsBlaze.

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