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Credit union checking: Free for the taking

Claes Bell

CheckingCredit Union Want Free Checking? Check Out Credit Unions

Will free checking one day join "Gangnam Style," planking and other relics in "I remember the 2010s" list someday? Not if credit unions have anything to do with it.

Bankrate's 2013 Credit Union Checking Survey shows 72 percent of credit union checking accounts remain free, down just 6 percentage points since 2010. Meanwhile, the percentage of free checking accounts at banks has dropped from 65 percent to just 39 percent from 2010 to 2012, according to Bankrate's most recent checking data from banks.

Bankrate surveyed the top 50 credit unions in the nation from Jan. 15-28.

"Once again, free checking is the rule rather than the exception among the largest credit unions," says Greg McBride, CFA, Bankrate's senior financial analyst. "That's in stark contrast to the sharp year-over-year declines that we continue to see in the banking sector."

That contrast is something credit unions want you to notice, says Ted Thames, senior director at Cornerstone Advisors, a financial industry consulting firm based in Scottsdale, Ariz. What they don't have in marketing muscle or branch network, they try and make up for by offering some of the lowest-priced checking around.

Lower fees than banks

"Free checking is something that credit unions pioneered way back, and I believe that the motivation for them to continue to keep that is a competitive one," Thames says. "Credit unions continue to think free checking is a draw."

For credit union checking accounts that do have a monthly fee, it's very likely you can get around it, McBride says.

"Even in the absence of a checking account that's free on a stand-alone basis is the nearly universal ability to get that fee waived through something like direct deposit, e-statements, transaction activity or some combination thereof," McBride says.

Overall, 96 percent of credit union checking accounts are free or can become free if you meet certain conditions.

But it wasn't just monthly maintenance fees where credit unions had a distinct advantage in Bankrate's survey. While credit unions aren't immune to charging penalties, their overdraft fees, known in the industry as NSF fees for nonsufficient funds, average $26.74 at credit unions compared to $31.26 at banks. That's not chump change, but it will demolish your checking account slightly less quickly should you run up multiple overdrafts.

Credit union checking accounts are also more lenient when it comes to using other financial institutions' ATMs. Nearly a third of credit unions do not charge a fee for using another institution's ATM or waive at least one such fee per week. Those that do charge a fee typically ding customers $1 or $1.50; banks usually charge $2.

However, credit unions are following banks' lead in one area: raising fees they charge nonmembers to use their ATMs. It will now cost you an average of $2.29 to use the ATM of a credit union you're not a member of, up 10 percent from last year.

Credit unions' low-fee recipe

So why are credit unions so much easier on your wallet than banks? It's in part due to how they're structured, McBride says.

"Credit unions have the advantage of being a not-for-profit cooperative that's in business to benefit their members, and one of the ways they benefit their members is by providing lower fees, an easier way to get around fees and lower rates on loan products," he says. "Rather than keeping profits for shareholders (as banks do), the shareholders are account holders, so the benefits get rolled back to them."

Another factor is that most credit unions aren't subject to a rule put into place in 2011 that caps the "swipe fees" financial institutions can charge merchants to process debit card purchases. That cap, created by the Durbin Amendment, left a big hole in bank revenues that they're trying to fill with higher bank fees. Not having to fill that hole has allowed credit unions to keep their fees low and lure customers away from large banks, says Fred Becker, president and CEO of the National Association of Federal Credit Unions.

"Most credit unions aren't affected by the change in interchange rates for debit cards," Becker says. "We're going to be playing bank-fee Whac-a-Mole for a while," referring to the arcade game in which a mechanical mole appears for a player to knock down, which causes another to pop up.

"They're going to be experimenting with charging various fees, and credit unions need to be prepared to take advantage of that," Becker says.

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