Fed up with higher service charges from banks, several Americans have switched their saving accounts to credit unions or co-operative financial institutions

Last one month proved to be one of the best in terms of new customer acquisitions for credit unions or co-operative financial institutions in the US.
Quoting Credit Union National Association (CUNA), a report from Consumer Affairs, said that over the past one month credit unions have added over $4.5 billion in new savings accounts. This was a result of revolt by consumers enraged by the idea of paying privilege fees for using debit card.

Bank of America was the first (and last as well) to announce that it would charge a fee of $5 per month for customers who made purchases through their debit cards. However, it evoked a strong reaction from the bank’s customers, who declared 5th November as ‘Bank Transfer Day’. Showing similarity with the ‘Occupy Wall Street’ movement, on Saturday thousands of customers closed their bank accounts to switch to a local credit union.

Credit unions or co-operative financial institutions are owned, controlled and operated by its members for promoting thrift, providing credit at competitive rates and other financial services to its members. The World Council of Credit Unions (WOCCU) defines credit unions as “not-for-profit cooperative institutions”. In the US, all federal credit unions and 95% of state-chartered credit unions have deposit insurance of at least $250,000 per member through the National Credit Union Share Insurance Fund (NCUSIF).

The reason why credit unions are popular in the US, at least at local level, is not just lower service charges, but also the treatment a customer receives. In a credit union, all customers are members, unlike banks where the account holder is treated more like a customer.

Quoting Bill Cheney, president and chief executive, CUNA, the report says, “The results indicate that consumers are clearly making a smarter choice by moving to credit unions where, on average, they will save about $70 a year in fewer or no fees, lower rates on loans and higher return on savings.”

US account holders may be switching to credit unions due to lower service charges and better treatment, the situation in India is completely different. The co-operative banking in India has a history of almost 100 years and some of the co-operative banks are much larger in size (deposits and credits) than many private banks. Unfortunately, except a few, many of the co-operative banks are financially not stable due to increased political interference, control and mismanagement. In addition, these banks tend to charge more fees and interest compared with other banks, especially nationalised banks, even from their own members.

In the US, the pressure created by enraged customers was so huge that Bank of America has to roll back its $5 privilege fee for using debit card. The reaction from savings account holders was so strongly negative that other big banks are considering a similar move announced they would not impose the fee, reports ConsumerAffairs.com