Forget the mattress. The nation’s 8,000 credit unions, which currently offer lower interest rates on loans and higher returns on savings accounts than most commercial banks, may be the new safest place to stash your cash.

Credit unions have largely avoided the troubles of the commercial banking industry by sticking to the basics; they take in members’ deposits and lend back to them at reasonable rates, charging an average of 4.41 percent for a home-equity line of credit compared to the 4.77-percent rate charged by banks (“Safe Havens: Credit Unions Earn Some Interest,” The Wall Street Journal, March 15, 2009). And credit unions have produced, on average, 2.29-percent returns on one-year certificates of deposit, unlike the 1.74-percent returns banks currently pay their customers.

Not only have credit unions’ safe banking practices proved fruitful for their books — they held $575 billion in loans in 2008, up from $539 billion in 2007 — their financial security and customer service appeals have contributed to a significant jump in membership. In 2008, credit union membership rose to almost 90 million, up from 85 million in 2004.

“Community First [Credit Union] not only had the best rate,” said Stephen Birkelbach about his Florida credit union. “I was so impressed with the customer service and the up-front attitude I moved everything over to them.” Not only did Birkelbach switch over his personal and business accounts to Community First, he also used the credit union to refinance his mortgage at 4.25 percent in January and to finance his truck.

Of course credit unions haven’t been completely immune to the effects of the economy; 15 credit unions were liquidated last year and two credit unions closed their doors this year. And credit unions’ delinquency rates have doubled from 0.68 percent in 2006 to an estimated 1.45 percent this year due in large part to high foreclosure rates. But the average delinquency rate for banks, currently at 2.93 percent, is still more than a full percentage point higher than the delinquency numbers credit unions have seen.

Comparatively, credit unions are “solid,” says Karen Dorway, president and director of research for BauerFinancial, a firm that analyzes banks and credit unions.

What to Know Before You Switch

Credit unions’ services and operations aren’t much different from those at commercial banks:

• Membership requirements: You will most likely need to have either your neighborhood, school, workplace, or church in common with a credit union to become a member. Search www.findacreditunion.com to find one near you.
• Service features: Most large credit unions offer the same range of services as banks, including checking and savings accounts and consumer loans. Some credit unions only require a $25 deposit to open up a savings account.
• Deposit insurance: All federal credit unions, as well as most state credit unions, are regulated by The National Credit Union Administration, and credit unions are federally-insured through the National Credit Union Share Insurance Fund and have the same insurance limits as banks.

You can compare your local credit unions and banks at Bankrate.com/brm/safesound/ss_home.asp and at Bauerfinancial.com/btc_ratings.asp, where you can review a credit union’s financial health based on its capital ratio, loan delinquency, and liquidity numbers.

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