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Credit Unions Offer Employees Financial Options at No Charge to Employers Posted on September 17, 2012

By Alicia Abell, The Chronicle of Philanthropy,

A year ago, Ronda Sue Fruit discovered a way to make her coworkers at a nonprofit Philadelphia daycare center happy. Best of all, it didn’t cost her employer a dime.

Last year, Ms. Fruit, human-resources administrator at Federation Early Learning Services, enrolled the charity in a credit union. “I had a gut feeling this was something the employees would really like and appreciate,” she says.

Credit unions caught her interest because she knew that they generally offer higher interest rates on deposit accounts and lower interest rates on loans than banks. In addition to offering better rates, credit unions don’t charge monthly service or check-cashing fees. And because many of the daycare center’s staff members are young, at the beginning of their careers, and not making a lot of money, she says, she sensed they would appreciate the ease of saving and borrowing that a credit union offered.

Last fall, when she looked into organizational membership for her organization, she discovered that enrollment was free. Ultimately, Federation Early Learning signed up with the local American Heritage Federal Credit Union.

“This is a way for the agency to give employees a benefit without costing us any money,” she says. The move, she says, has boosted worker morale: “I think the employees feel like the administrators are really trying to do more for them and being creative with the benefits we offer.”

One worker, Jennifer Kulb, the center’s program coordinator, affirms that she’s happy with the new perk. “I like the fact that it’s convenient, that anything I need to do can be done basically over the phone,” she says. “I applied for a loan and my loan went through very fast. And if I ever have a question and need to call, they’re very friendly.”

Because of the lack of enrollment costs, credit-union membership can also make it easy for charities with a lot of part-time workers, like Federation Early Learning Services, to provide a perk for employees who may be ineligible for other benefits such as health insurance or retirement plans, says Ms. Fruit. Yet despite the advantages membership brings, the vast majority of nonprofit groups do not offer it to their employees, according to worker-benefit studies conducted by Abbott, Langer & Associates, a human-resources consulting group in Chicago whose clients include nonprofit organizations.

Administrators at charities that do offer credit-union membership don’t understand why others do not follow their lead. “I can’t think of any situation in which it wouldn’t benefit an employer to enroll,” says Juanita Gross, director of human resources at Eden Housing, which provides low-cost housing in Hayward, Calif.

Counting the Advantages

Although credit unions usually offer fewer services than banks do, those services are often more favorable to customers because credit unions are nonprofit financial institutions owned and operated by their members. That means they aren’t obligated to return profits to their stockholders, as banks are; instead, they return earnings to credit union members in the form of better interest rates and lower fees.

‘“When I’ve needed loans, the rates at the credit union were great compared to other places," says Richelle Wesley, a nurse at Lahey Clinic in Burlington, Mass., which belongs to Alpha Credit Union in Boston.

More specifically, credit unions almost always offer higher interest rates on savings accounts, much lower service fees, and lower rates for auto lending than do other financial institutions. Rates for other types of lending vary a bit more — for example, banks sometimes offer more competitive rates on mortgage lending. Many credit unions also offer direct-deposit services, just as banks do — and nearly all credit unions are federally insured, just as banks are.

A recent check of data updated daily on the Credit Union National Association’s Web site showed average credit-union rates beating average bank rates in nine out of 10 categories. In addition, credit unions have ranked first among all financial institutions in every American Banker customer-satisfaction survey since 1989.

Another advantage of credit unions, says Ms. Gross, is their reputation for inclusiveness: Usually a member’s spouse, children, parents, siblings, and, in some cases, domestic partner are eligible to join as well. Credit unions also tend to be less rigid than commercial banks in terms of whom they will lend money to and allow to open an account. At some credit unions, the minimum deposit to open a savings account is $5.

Choosing a Credit Union

In deciding how to choose a credit union, employers should consider membership requirements, services offered, and convenience.

For many years, credit-union membership was available only to employees of large corporations. Each credit union was originally formed to serve a single group of people with some sort of “common bond,” typically employment by the same company. In the 1980s and early ’90s, due to a loosening of federal regulations, the number of different employer groups that could belong to a single credit union started to increase, says Jay Johnson, executive vice president of Callahan & Associates, a credit-union research and consulting company in Washington. Soon, he says, some credit unions swelled to include more than 500 organizations as members.

In the late ‘90s, membership started to become even more open. Today, the “common bond” required at many credit unions is geographic. The standard rule is, "if you live, work, or worship within the community — defined by county, multiple-county, or perhaps city limits — you’re eligible," says Mr. Johnson.

For employers located close to a credit union, the only real membership constraint has to do with size. By law, an employer with more than 3,000 workers must form its own credit union rather than join an existing one, unless it proves that doing so is not viable. Some credit unions may impose their own lower limits, but legally, an organization does not need a minimum number of employees to be eligible, says Cherie Umbel, spokeswoman for the National Credit Union Administration, in Alexandria, Va., the government agency that supervises federally insured credit unions.

In terms of services, most credit unions provide the same basic products that banks offer: checking and savings accounts, credit cards, and home, car, and other consumer loans. At the least, they offer savings accounts and auto loans. Credit unions have traditionally been leaders in auto lending, and car loans frequently constitute a large part of their business, notes Mr. Johnson.

Fees and rates vary between credit unions, but not wildly. While it’s smart to compare rates, what’s most important is finding a cluster of services that meets the needs of the organization’s employees, says Mr. Johnson. If the goal is for the credit union to be a full-fledged alternative to a bank, he says, it should offer the full range of options: credit cards, automated-teller machine cards, money-market accounts, and mortgage lending, for example. If the idea is simply to offer a high-interest savings mechanism to employees, he says, bells and whistles are less important.

A final consideration when choosing a credit union is convenience. Because credit unions don’t have as many branches as commercial banks, it’s important to make sure to select one with branches nearby, charity managers say. For example, says Ms. Wesley, her employer, Lahey Clinic, belongs to a credit union whose closest branch is in Boston, 25 miles away. Credit-union representatives visit the clinic’s offices, but only once a week. “So if you want to meet with them,” she says, “it’s not as easy to arrange.”

To mitigate this drawback, some credit unions participate in “shared branching.” A shared branch is a single facility that houses several different credit unions. As long as a credit union belongs to the branch, members can perform basic transactions there. In addition, some credit unions maintain Web sites that allow users to make transactions online.

Letting members have round-the-clock access to their money is vital. “You want to make sure the credit union is on a major A.T.M. network,” says Ms. Gross. “Most are, but that’s a biggie.” Credit unions provide fewer automated-teller machines than banks. However, many belong to national networks that allow members to use their A.T.M. cards at any credit-union machine in the network with no surcharge. (Cards can also be used at commercial-bank machines, for a fee.) The largest of these networks is the CO-OP Network, with some 1,300 credit unions as members and 17,280 A.T.M.’s across the country.

Signing Up

Once an organization has chosen a credit union, the enrollment process is simple. “I think it just boiled down to me calling and saying I wanted to find out about organizational membership,” recalls Ms. Gross, who joined a credit union on behalf of her former employer, Planned Parenthood Golden Gate, in San Francisco.

After contacting the credit union — and, in some cases, meeting with its representative — all an organization must do is write a formal letter requesting membership. Because there’s no fee for organizational membership, so, Ms. Fruit says, “all it costs you is the time to set up the meeting and write the letter.”

Once the application is complete, it is submitted to the appropriate state or federal authority. Most applications can be submitted online, so turnaround — and approval — can occur in less than a day.

Once an organization becomes a member, employees simply submit a brief membership application of their own, as they would to a bank.

Simple enough, charity managers say. “Joining a credit union was really easy,” says Ms. Fruit. “And it’s wonderful for the employees.”

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