Banks vs. Credit Unions–Where to Find the Best Interest Rates

Photo: shehan365

Where do you go to find the best interest rates? With the Occupy Wall Street and Bank Transfer Day movements in the news, I lot of folks have moved from big banks to credit unions. And that raises an important question–do banks or credit unions have the best interest rates?

Now in some ways it’s a silly question. Depending on what type of account or loan you need, sometimes a bank will be your best bet, and sometimes a credit union will be the better choice. But I did find one source that claims to survey financial institutions for the best rates. The resource is the National Credit Union Administration, an independent federal agency.

NCUA publishes a quarterly report comparing the average savings and loan rates at credit unions and banks. The most recent report generally showed CU’s as have the best rates on savings products and loans, with the exception of mortgages. Banks offered lower mortgage rates than CU’s. Here’s a snapshot of the findings:

ProductCredit Unions
(National Average Rate)
All Banks
(National Average Rate)
5 YR CD-10K1.931.54
1YR CD-10K.67.50
Money Market-2.5K0.280.18
Interest Checking-5K0.170.13
Credit Card11.6413.22
30YR Fixed4.294.20
15YR Fixed3.643.48
New Car 60 Month3.735.09
New Car 48 Month3.615.00

The best rates above are in bold, and you can find the full report here (.pdf).

When I first looked at these rates, something didn’t seem right to me. In the course of writing for the Dough Roller since 2007, I’ve looked at a lot of interest rates from both banks and credit unions. And I know for a fact that some of the best rates come from banks. And then it hit me.

I never look at averages. Averages are great for an academic study, but absolutely useless when it comes to actually finding a financial institution. And my bias is always towards the best rates, regardless of whether they come from a big or small bank or a credit union.

But here’s the real kicker. Much of the time the best rates with the lowest fees come from online banks. So I went to some of my favorites to see how they compared to the above interest rates. Here’s what I found (Rates are as of December 16, 2011, except for CU average rates, which are based on the NCUA’s 2011 3rd Quarter Report):

The only thing that surprised me in the above comparison is that online banks didn’t take every category. I guess credit unions have cornered the market on 5-year certificates of deposit.

Turning to credit cards for just a moment, I’ve never been a fan of truly low interest cards. That may seem crazy, but here’s why. You can find cards that charge less than 10% interest (forget the averages listed above, some credit cards have much lower rates). For example, IberiaBank cards offer rates as low as 7.25%. The problem is that you need to have truly excellent credit to qualify. the vast majority of consumers can’t get these cards, and those that do probably don’t carry a balance on the card from month to month anyway.

Now none of this is intended to cut down credit unions. If you doubt that, check out my article on how to find the best credit unions. Rather, the key to shopping for any financial product is to find the best rates available. If they come from a credit union, that’s great; if they come from a small bank, terrific; and if the come from a super-humongous behemoth of a bank, so be it.

There’s only one thing that should be influencing your decision when it comes to banking–“Show me the money!”

Published or Updated: January 22, 2012
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. I am a personal fan of ING Direct. I’ve been a customer for about 5 years and their customer service has always been amazing. They have zero fees and good rates. Now they offer a traditional checkbook so you can write your bills via check if you would rather not use bill-pay. They have some excellent promos going on for new customers!

  2. Rob says:

    ING Direct is one of my favorites, too. Both of my children have savings accounts at ING. In terms of promos, you can check out this $50 bonus for opening a checking account with ING.

  3. Nick says:

    I’m a big fan of Ally’s 5-year CD. The rate is slightly lower than discover but there’s only a 60-day early withdrawal penalty, so essentially it’s better to do a 5-year ally than a 1 year almost anywhere else because even taking the 60-day penalty, you’ll earn more with Ally.

    I agree that for smart credit card use interest rate doesn’t matter because you won’t pay any interest.

  4. Annie August says:

    My husband and I gradually moved everything, including our personal and business accounts over to Oak Trust Credit Union in Plainfield, Illinois. Compared to our previous bank, Oak Trust offered us far better service, with lower fees and better rates.

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