Membership in credit unions is booming. According to the Credit Union National Association (CUNA), more new members were added in the first quarter of this year than in all of 2010. For the first time, credit union assets now top $1 trillion.

What's going on? In part, big banks have been their own worst enemies. First it was Bank of America's ill-conceived plan last fall to charge a monthly $5 debit-card fee. That helped spawn Bank Transfer Day, a popular grass-roots movement encouraging bank customers to switch to credit unions. The movement drew more than 55,000 Facebook "likes." At roughly the same time, Occupy Wall Street protesters got a lot of attention complaining about what they perceived to be corporate greed, singling out big banks for some of their harshest criticism. More recently, JPMorgan Chase was in the news for a reckless investment that lost $5.8 billion.

Many people are discovering credit unions to be a more financially conservative, customer-friendly alternative.

What are credit unions?

Credit unions are not-for-profit financial services "cooperative" organizations. That means they are owned and operated by their members, such as employees of certain companies or employees and alumni of particular universities.

Today, more than 7,000 credit unions are in operation in the U.S., serving more than 93 million members. They excel in two key areas: rates and customer service.

  • Rates. Because of their unique structure, credit unions tend to operate conservatively. (They largely avoided the sub-prime mess that entangled so many big banks.) Being not-for-profit organizations means credit unions typically (but not always) are able to pay higher interest rates on savings accounts than banks do while charging lower rates on loans. The most recent data from CUNA show credit unions offering better interest rates than banks on savings products and vehicle loans, but less attractive rates than banks on mortgage loans.
  • Customer service. In several surveys, credit unions have scored high marks for customer service. For example, late last year credit unions earned the highest score ever achieved by any of the 47 industries covered by the American Customer Satisfaction Index (ACSI). As for big banks, the ACSI said they "are so far behind both smaller banks and, especially, credit unions that the exodus of customers is likely to continue."

Some credit unions offer benefits such as member discounts on auto and life insurance. While credit unions typically have fewer branches and ATMs than big banks, some belong to Co-Op Network, which gives members access to more than 30,000 no-fee ATMs across the U.S. and Canada. About a third of those ATMs also accept deposits.

Are credit unions safe?

Two organizations insure money saved at credit unions. The National Credit Union Administration (NCUA) insures savings in federal and most state-chartered credit unions with a fund backed by the full faith and credit of the United States government. NCUA guarantees deposits up to $250,000 per individual account holder, or $250,000 per person for joint accounts. The other organization, American Share Insurance (ASI), provides private insurance, covering up to $250,000 for each account held by a member of an ASI-insured credit union.

Who is eligible to join?

Most credit unions are sponsored by employers, trade or community associations, educational institutions, or other organizations. Membership, historically, has been limited to those who are part of such organizations.

However, a growing number of credit unions are catering to the public at large. CUNA has a website that can help you find a credit union near you. SMI wrote specifically about leading faith-based credit unions in the April 2010 newsletter; Christian Community Credit Union and the Evangelical Christian Credit Union are two that most SMI readers would be eligible to join.

At a time when many consumers are interested in ditching the "big banks," credit unions are meeting a need by providing consumers with alternatives.