Money Rehab with Nicole Lapin - Should You Dump Your Bank for a Credit Union?

Episode Date: December 17, 2023

Originally aired 1.30.23 And, WTF is a credit union anyway? Nicole reveals all.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. It's time for some money rehab. Having an issue with your bank can be so unsettling, to say the least. Money is stressful enough without having to worry that your bank,

the place where your money is supposed to be safe, is going to disappear your money. It's a real, the call is coming from inside the house situation. And that's exactly what happened to Bank of America customers recently. Earlier this month, customers woke up to discover that money was missing from their accounts. For some people, this missing money even led to bigger problems like accidentally overdrafting when they should have had enough money to cover their spending. Or for others, the missing money resulted in a negative balance account, with some reporting that they were in the red by thousands of dollars. Many of these customers ended up complaining on Twitter because the call center was no help. As one customer tweeted, when they tried to call Bank of America,

the lines were so overwhelmed that people were being hung up on. Even calling their local branch or going there in person didn't resolve the issue for many customers. The problem was ultimately resolved fairly and people got their money back. But that isn't always the case. Take Wells Fargo, for example. In December of last year, Wells Fargo was fined $1.7 billion, yes, with a B, for what the feds call widespread mismanagement. What does widespread mismanagement look like? In short, it looks bad. The most minor offenses were things like incorrectly charging customers fees that they should have never been charged. But bigger issues were things like casually declaring people dead who were very much still alive. And in the most egregious cases, they actually repossessed people's cars and even foreclosed on their homes for failure to pay when they had, in fact, paid all of their bills.

Again, the issue could not be resolved with a quick phone call to customer service. Right. This time it required a federal investigator to get involved. When you hear these two stories, it makes you wonder, is there a better way to bank? The answer is sometimes. So let's talk about an alternative. Let's talk about credit unions. A credit union is a customer-owned banking service. This is in contrast to big banks that are for profit and have shareholders. And these institutions have made a lot of money for said shareholders. For many years, Bank of America was one of Warren Buffett's favorite stocks. But making a lot of money

for shareholders doesn't necessarily translate to being the best place for you to bank and put your hard-earned money. Because banks make their money in three main ways. Number one, they earn interest on the assets they hold. So your money. Number two, they earn money from fees on your money. And number three, they earn money from something called the spread, which is the difference between how much they pay in interest on money deposited with them and how much they charge in interest on money they lend out. Let's double click on that one because it is such an important one. As a customer of a bank, you're always going to be charged a higher interest rate on what you borrow from the bank

than what you can earn in interest from keeping your money there. This is how the spread affects you. For example, the average interest rate you earn in a savings account is 0.33%, while the average APR you pay on your credit card bill is 23.39%. So net net, banks make it expensive for you to borrow money, aren't as generous when it comes to how much you can earn with them, and charge you fees on both sides of the process so they keep that spread nice and wide. And listen, banks aren't charities, and they never claim to be. They are money-making operations, and the spread is the cost of us doing business with banks. But what if the cost of doing business was different because the business model was different? What if your financial institution didn't answer to shareholders and therefore

only answers to customers? Suddenly, the profit motive is different because the institution doesn't need to generate so much money. They don't need to charge as many fees or the steepest interest rate, and they can afford to pay you more on your savings account. This is how a credit union is set up. Credit unions need to earn what it takes to keep the lights on, the server safe. That's about it. The profit structure is the biggest difference between credit unions and banks. It does mean that membership is limited, at least somewhat. You may need to have a certain type of job or bona fides to be able to join one. But honestly, there's a credit union finder put out by the federal government, which of course

we've linked in the show notes, and there's a very good chance you're going to be able to find a credit union near you. So while membership is limited, it's not exclusive. It's not a mean girls, you can't sit with us situation. But there's always a but. There are drawbacks to credit unions. First, credit unions tend to be hyper-local. There are some exceptions, like Navy Federal Credit Union, which has a wide footprint, well, for credit unions anyway, but it still doesn't have nearly as many branches as big banks. And honestly, having a hyper-local branch is sometimes a good thing. If you have a problem, you aren't calling a national number and competing with thousands of callers around the country.

You're calling Mary at your credit union. You may even know Mary. Even if you don't, she's going to be able to sort out your problem a lot faster than pressing 1 or 2 on an automated machine that's probably going to hang up on you at some point just to keep their wait time stats looking good. Yeah, that really happens. on you at some point just to keep their wait time stats looking good. Yeah, that really happens. The convenience factor of credit unions, though, pale in comparison to the big banks. Like, credit unions will probably not have as many ATMs as a big bank, and their app might not have as much capability as big financial institutions. And that's assuming your credit union even has an app, which they may not. Another thing people groan about when it comes to credit unions is that they aren't insured by the FDIC or Federal Deposit Insurance Company.

The FDIC is an insurance agency run by the federal government that protects deposits of up to $250,000 in the event that your bank fails. Credit unions are not covered by the FDIC. that your bank fails. Credit unions are not covered by the FDIC, but it's really no biggie because credit unions are covered by the NCUA, or National Credit Union Administration, which insures accounts of up to $250,000 as well in the event the credit union fails. So it's basically same same. Here's the big point. Credit unions offer great benefits to members. But even if you love your bank and get great benefits from them, you may still want to open an account to access some of their benefits, like a deliciously low mortgage rate. Right now, many credit unions are offering loans at significantly better rates than commercial

banks, which makes them worth checking out, even if you didn't just have your money disappear from your account for no actual reason. For today's tip, you can take straight to the bank. Turn off overdraft protection so that you don't end up getting screwed like those Bank of America customers. I know that overdraft protection sounds like it's something that would help you, right, with the protection part. But that's just slight of hand. What overdraft protection means in practice is that if you spend more than you have in your account, your bank will give you a quickie loan so that your transaction doesn't get declined. But then they'll slap you with a big old fee. If you turn off overdraft protection, yes, your transaction will get declined and that might feel a little

embarrassing, but it's a whole lot better than getting hit with a $35 fee for a $5 cup of coffee. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening

and for investing in yourself, which is the most important investment you can make.