We all want to see our savings grow. The problem is interest rates are near historic lows so depositors are not earning much. Many people have been conditioned to think that a bank is the best place to park your money but if you want higher yield, a credit union may be a better alternative. Many credit unions now rank among the highest-yielding deposit accounts.
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Credit unions are similar to banks but unlike many banks, which are owned by shareholders, credit unions are owned by their depositors. “When you join a credit union, you become a member or an owner of the credit union and because you are an owner, what that means is the deposits are funneled back to you, not to the shareholders. More often than not, you are likely to find higher yields on your savings accounts and lower loan rates,” says Mike Schenk, head of economics and statistics at the Credit Union National Association.
We are seeing that play out. Credit unions are now among the top-yielding savings accounts (deposits of $1000+ as of June 27, 2016): Here's a look at some of the credit unions offering the highest yields on rewards savings and checking accounts (as of June 27, 2016):
- Pioneer Mutual Federal Credit Union APY: 2.27%
- Hanover Community Bank APY: 2.02%
- Rogue Credit Union APY: 2.00%
- Infinity FCU APY: 5.12%
- Beacon Credit Union APY: 5.05%
- Honor Credit Union APY: 5.00%
- National Average APY: 1.67%
Schenk says if history is any guide, consumers can expect to see even higher yields on credit union deposits as the Federal Reserve starts to raise interest rates. “When market interest rates go up, more than likely credit union earnings will likewise go up and they will have more to return to their members,” he says.
In the first quarter of this year, the average interest rate on a savings account at a credit union was .21% and .09% at a bank according to Informa Research Services. Back in 2007, when the Federal Reserve’s benchmark rate was at 5%, the average interest rate on a savings account at a credit union climbed to .94%. Yields for savings accounts at credit unions were also .21% higher compared to banks. Schenk expects as interest rates climb back up, rates on deposit accounts at credit unions will likely follow a similar pattern as in the past.
One drawback to a credit union is that not everyone can join. Historically, credit unions had narrow fields of membership so members needed to belong to the company, school or organization affiliated with the credit union. Over the years, many credit unions have eased restrictions so membership has become easier. Check out www.asmarterchoice.org to find credit unions in your area. Many credit unions have also opened membership to relatives of members so check with family to see if they have access to a credit union.
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Schenk says credit unions also vary greatly when it comes to interest rates and membership policies so it is important for consumers to do their research. He recommends calling a credit union directly to ask about membership requirements, interest rates, location and ATM access.
Expect Higher Rates