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MainStreet.com: 7 Reasons Millennials Are Turning to Credit Unions Instead of Banks

Feb 23, 2015

This article was published on MainStreet.com’s website on February 23, 2015.

NEW YORK (MainStreet) — The interest rates Taylor Rogich gets for his car and personal loans from his credit union are much lower than those from his traditional bank. That means the 24-year-old in Coconut Creek, Fla. will save hundreds of dollars over several years.

It was the prospect of keeping that extra cash that drove Rogich to open his account at Navy Federal Credit Union to use for loans, instead of sticking only with a traditional bank.

“I primarily use Bank of America for direct deposit and to pay monthly bills, but the benefits I receive from Navy Federal are phenomenally better,” he said.

Rogich isn't alone in eschewing traditional brick-and-mortar banks and joining credit unions for cheaper loans and better customer service. Between 2013 and 2014, nearly 2 million Millennials became members of credit unions, a 2% increase, said the Credit Union National Association, a Washington, D.C. trade group. Gen X-ers are also switching: 1.9 million opened accounts in the same period, and now 28% of credit union account holders are Millennials and 26% are Gen X-ers.

Here are the top seven reasons Millennials have found credit unions to be a better fit for their needs.

  1. Credit unions are perceived to be more customer-friendly and can answer questions directly.
    Large banks still bear the stigma of being old-fashioned and "not easy to do business with," among the Gen Y crowd, said Neil Hartman, director in the banking practice at West Monroe Partners, a Chicago business and technology consulting firm. Credit unions can also help Millennials as they are making decisions to buy cars and homes by offering educational services, such as how to build a good credit rating, that are "simple, straight forward solutions that are easy to consume and use," Hartman said.
  2. Receiving a loan at a credit union is likely to be easier, because the qualifications are not as stringent.
    Millennials with lower credit scores get approved for them, unlike banks which tend to turn them away, Hartman said, projecting that the trend that will continue until the risk appetite at banks eases.
  3. Questions at credit unions are answered quickly and customers can skip the frustrating phone menu.
    Millennials want to know that there is a person on the other side of the phone or transaction, says Shawn Gilfedder, CEO of McGraw Federal Credit Union in East Windsor, N.J.
    "They want to know that they can pick up the phone and talk to somebody," he said. "Millennials are really the no-fluff group, and they want it when they want it and how they want it."
    Andrew Folkner, 30-year-old attorney in Atlanta, says he has kept his main account at a credit union, because it is easier to speak to someone, making both the quality of service and rates of return “superior” compared to larger banks.
  4. Mobile banking is the new norm.
    Millennials gravitate toward technology and apps that are on the same level as big banks, and found that credit unions are offering “just as many” online services and apps, said Folkner.
    Switching to a credit union two years ago meant that Chris Kummer, 33, an associate account executive in public relations in Seattle, could keep using his favorite three financial apps and maintain the personalized service. “I will never go back to a big bank,” he told MainStreet.
    Some Millennials prefer to do all their banking from their cellphones and some feel that banks are not on par with their offerings. A recent survey by Accenture shows that 72% of Millennials are actively using mobile banking, and 67% of them feel that the online experience that they receive from their banks is inadequate.
    "Millennials manage their lives on-the-go and banks simply have not put the effort into delivering a seamless and intuitive mobile experience,” said Tyler Griffin, CEO of PrismMoney, a Bellevue, Wash. bill pay and budget app.
  5. Millennials are more aware than other generations on how to shop for deals, including pricing loans for cars or a mortgage for their first home.
    “On the lending side, they use many of the resources that are available to assess the features and benefits, and when they find something that they like, they are a highly loyal group,” said Gilfedder. “Millennials are smart consumers and they can quickly identify where the opportunities are.”
  6. Membership in credit unions now is more open than in the past when you had to be affiliated with a certain company or group.
    “You can find a credit union in practically any city with the only requirement for membership is to live in that city,” said Elizabeth Cooper, a professor of finance at La Salle University in Philadelphia who studies banking.
  7. Millennials find the lower fees to be a better option, especially if they are on a tight budget.
    Since credit unions are non-profit institutions, they are appealing to people who are tired of the excessive fees imposed by banks.
    “The key is the perception that these institutions are not out to make a profit off of their customers and instead aim to provide members quality service and better interest rates relative to commercial banks,” Cooper said.
    Erin Ellis, a financial educator at Philadelphia Federal Credit Union, said the hidden fees at banks means it’s easy for someone to overdraw on his account and “trigger a snowball effect of overdrafts which can cost a lot of money.”
    “Once I learned that credit unions often have no fees at all, I switched right away." said the 32-year-old Millennial. "The credit union understands that I may not be able to keep a large balance in my account and they do not punish me for this.”

-- Written by Ellen Chang for MainStreet

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