In the aftermath of the recent Federal Reserve rate cut, savings rates have been dropping at banks and CUs across the country. Short-term CD rates have been dropping sharply at banks (most bank CDs of 1 year or less are under 1%) but CU CD rates are now significantly higher than those offered at most banks.

If you are seeking to earn any kind of interest return on your long-term savings (other than an investment in equities), you might seriously explore CU short-term CDs. While Internet-based banks like ING DIRECT will also offer high savings-account yields, those rates could continue dropping as yield-starved investors flock to them. Don't be too surprised if ING and other highest-yield accounts drop to around 1.5% APY - or even lower if money-market fund investors become nervous about their funds "breaking the buck" as they approach zero yields.

See this example of offerings from Seattle Metropolitan Credit Union: 6 month CD 1.82% APY, 1 year CD 2.13% APY. These rates are more than double of what most B&M banks are offering, higher than most stockbroker-offered CDs, and higher even than most Internet banks' CD offerings (which suggests those banks may be anticipating lower rates in the next few weeks).

You should of course also consider US Treasury Savings Bonds, but keeping in mind some of the redemption limits and purchase limits on Savings Bonds, CU CDs are another option worth exploring.

Tivo 1's thread Question about banks with local branches presents a classic example of a situation where a credit union likely would provide friendlier service and support than a bank. Tivo1 wrote:

<< My GirlFriend who is a poor manager has no credit cards or even a savings or checking account. Her and I think that it would be a good idea to get her at a minimum a savings account with a visa check card so that she can pay bills with it, and make purchases rather than using her foleys (and the like) cards.
1) does this seem like a good idea? Or would something else make more since?
2) what are some national banks that have many local branches?
3) which of these banks would be good for cash deposits (since she doesnt get a regular paychecks) therefor no Direct deposits
4) which ones have No fees, or low monthly fees?
If you have some helpful advice great but Rather than flame me.. if you could just point me to something useful >>

For a person who has never had a deposit account before, credit unions are likely to be much more helpful than the typical bank. Particularly if you find a smaller community-based CU rather than a giant-sized CU, CU staff are far more interested in teaching an inexperienced depositor learn how to make deposits and withdrawals and how to manage their checkbook including keeping track of debit-card purchases and ATM withdrawals. CU staff may be more forgiving towards a new depositor who makes errors in their new account - which is to say that some banks can be rather nasty towards clients who "abuse" new accounts and can report derogatory information to the ChexSystems nationwide database.

Shop carefully for a CU, though. Some larger CUs increasingly resemble large banks in their business approach, and an inexperienced banking consumer might look for a place where there aren't chronic long teller lines, where CU staff are readily available to answer questions in person or on the telephone, and where there's a "user-friendliness" factor.

Credit Unions Onlineoffers an excellent searchable database of nearly all CUs with a WWW presence.

On rare occasions, you may learn about company-sponsored CUs whose field of membership is very tightly limited to existing employees and retirees of the parent company.

These "corporate employee-benefit" CUs exploit having a "cherry-picked" FOM (everyone is on the company payroll and/or receiving a company pension) and may offer phenomenally good deals on high-yield savings and low-rate loans - as long as you are active within the FOM. I recently joined an employer offering such a CU.

If you join such a CU and then leave the FOM (i.e. switching employers), you might technically be able to maintain your CU membership but you won't receive the same attractive rates offered to active employees or company retirees.

Those small company-sponsored CUs are clearly established as an "employee benefit", often even receiving subsidized office space from the company, and are not intended to service individuals not directly employed by/retired from the parent company. They are a very sweet "golden handcuffs" deal for those offered membership.

RallyCap said:

<< SeattleNative said:

<< 4. Credit Unions generally offer lower fees and transaction charges, and somewhat higher savings interest rates, on deposit accounts than banks. >>


SN, just a theoretical question. Are there any bad credit unions? I mean with minimum balances, fees, interest rates and customer service on par with a notoriously bad retail bank like Fleet? Or is there peer pressure that keeps them in line? >>


Credit unions can offer you all the goodies because they don't have to pay federal income tax, which gives them a cost advantage over traditional financial institutions. In exchange for this excellent tax treatment, a credit union is restricted in its ability to grow, since membership is limited to a group of people who meet certain, though quite lax, criteria. You see $100 billion banks but never a similar size CU, right?

Thread being updated! As time permits, more recent discussion threads will be added. I've also included a brief discussion about credit unions converting to bank charters.

FAQ updated - bump for interest

I'm sorry because I dont know where to ask, a lot of threads here.
I have a question about the Credit Union. They said $25 charge per transaction for wire transfer, that mean everytime I want to buy USSaving Bonds or deposit to INGDirect account I have to pay this fee. Thank you.