13 minute read
By Noah Logan
Understanding Key Differences in Banks vs Credit Unions
As a business owner, it’s imperative to have a financial account to manage your business-related income and expenses that is separate from your personal account. Some business owners choose the same institution where they manage their personal finances, but it’s important to explore all options and this includes the various Huntsville city credit unions.
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Before you make your decision, it’s important to understand what banks and credit unions offer their customers and how that aligns with your business’s financial goals and circumstances. This resource article aims to lay out some of the key differences between credit unions and banks.
The biggest difference between a bank and a credit union is essentially its profit status. Banks are for-profit, either privately owned or publicly traded, while credit unions are nonprofit institutions completely owned by its members. This for-profit vs. not-for-profit contrast is the driving force behind most differences.
A credit union is owned by its members, and is actually set up the same way as a cooperative. Credit unions typically open membership to individuals who share a common bond, such as the industry they are employed with Redstone Federal Credit Union. Credit unions are also generally exempt from various federal taxes, and some credit unions even receive subsidies from the organizations that they are affiliated with.
It is the credit union’s mission to provide its members with the best terms it can afford for their financial products as opposed to a banks mission to make as much money as possible for shareholders. This means members generally get lower rates on loans, pay fewer (and lower) fees and earn higher APYs on savings products than bank customers do.
We’ve included comparisons on national average rates for 10 common loan and deposit products for banks and credit unions. This information comes from the National Credit Union Administration and the data is sourced from S&P Global Market Intelligence.
Advantages of Banks Over Credit Unions: • More financial products and services: Most banks provide services that aren’t found at credit unions such as investment accounts and financial advisory services in addition to standard banking products. • Physical branches and ATMs:
One of the more obvious draws of banks is the convenience of large numbers of physical locations and ATMs. While most banking is done online in 2022, having ease of access to more locations is always beneficial.
Advantages of Credit Unions Over Banks: • Fees and account flexibility:
Credit unions will usually have lower costs and more flexibility than banks. This includes more accounts that don’t have monthly maintenance fees attached to them and do not charge money for overdraft protection. • Better rates on savings accounts and loans: Credit unions offer higher interest rates on savings accounts and lower rates on loans. Higher interest rates on bank accounts help your money grow faster, while lower rates on loans make it cheaper to borrow money.
One difference about credit unions is that they’re not insured by the Federal Deposit Insurance Corporation, or FDIC. However, even though credit unions are not subject to FDIC insurance, National Credit Union Administration (NCUA) insures deposits in most reputable credit union accounts.
Both FDIC and NCUA insurance guarantee up to $250,000 for account holders if the specified institution were to become insolvent.
All federal credit unions and most state credit unions are insured by the NCUA. At the NCUA website, you can see if your credit union is covered, and NCUA-insured credit unions always prominently display their insurance status on signage in their branches.
Consumer Satisfaction Myth?
One common notion about credit unions is that they offer better, more specific customer service. However, some data shows that banks have surpassed credit unions in overall consumer satisfaction.
Credit unions continue to lose ground with consumers, according to the American Customer Satisfaction Index’s most recent finance study. Credit unions have scored behind banks for four straight years. Banks now score higher than credit unions in nearly every service category as rated by U.S. consumers, according to this year’s survey. On the ACSI’s 100-point scale, credit unions now trail banks by three percentage points. Banks’ overall score (78) has remained relatively unchanged over the last four ACSI reports while the credit unions’ score has fallen to 75.
The 2021-2022 study, which was based on more than 13,500 customer interviews, covers banks, credit unions, financial advisers and online investment. According to researchers, rapid membership growth fueled by the pandemic and ongoing industry consolidation could be affecting credit union customers, though the credit union industry’s traditional area of strength in the annual survey—in-person service—has remained consistent.
National banks climbed 1% to an ACSI score of 77, followed by super regional banks, up one percentage point to 76. Citibank places first among national banks after inching up one percentage point to 78. Bank of America rose one percentage point to 77 to meet Chase for second place. Wells Fargo took last place for the sixth consecutive year despite advancing three percentage points to 76. Capital One expanded its lead among super regional banks, surging four percentage points to 81. PNC Bank rose three percentage points to 78, followed by U.S. Bank, which rose three points to 77.
For the fourth year in a row, Forbes recognized Redstone Federal Credit Union as a top credit union in the state after reviewing member surveys and overall standings.
Forbes partnered with market research firm Statista to produce the annual ranking of the Best Credit Unions in Each State for 2022. Banks and Credit Unions were scored in sub-categories including trust, member and branch services, digital services, financial advice, and terms and conditions. Only 2.7% of all banks and 3.4% of all credit unions made its list, according to an announcement from Forbes. w
By Noah Logan
Third Quarter Report Quantifies Impact of Inflation and Interest
By Marie Johnson / Infographics courtesy of HAAR / Valley MLS
The Huntsville Area Association of Realtors has released its report, compiled by faculty of UAH’s College of Business, on the state of Madison County’s residential real estate market for 3Q 2022.
The statistics reported shed more light on shifts that we’ve been tracking, putting them into context with both the previous quarter and the third quarter of last year. For instance, the inventory of homes in the region have increased 42% since the end of 2Q 2022, and 95% relative to 3Q 2021. A majority of the homes listed are in the $350K - $500K price range, which neatly coincides with the range with the most sales. Supply and demand seem to be evening out, as, with the population of Madison County growing to more than 400,000 people, demand for housing will continue to support construction work for some time. With this report, the challenge now appears to be managing the 8.2% rate of inflation alongside mortgage rates over 6%.
The median price for a home in Madison County for 3Q 2022 was $336K, which, while 14% higher than 3Q 2021, is a slight dip relative to 2Q 2022, illustrating the abrupt check on the rising housing prices. 27% of homes sold in 3Q 2022 sold for below the list price, a percentage that is up from 15% the previous quarter.
Price isn’t the only aspect of the sellers’ side to have its momentum slowed, as houses spent an average of 12 days on the market, an increase of 4 days on average. Moreover, the total number of houses sold for the third quarter of 2022 was the lowest third quarter amount since 2018.
This report confirms the trends that we’ve been tracking, while demonstrating the scale of these movements. The sharp rise in interest rates were certainly abrupt, but given how the population of Madison County continues to grow, checking inflation with that shocking slap to the market may well be what made the difference between high inflation and a runaway lurch that would have caused grievous issues down the line.
The Huntsville Business Journal will continue to keep its readers apprised of market conditions. w
The Historic Context of Mortgage Rates By Marie Johnson
The national real estate market has reeled at the sharp increase in mortgage rates, as 30-year fixed mortgage rates have topped 7% for the first time in over twenty years.
Sounds bad, and it has many wondering if numbers will continue to get worse.
Freddie Mac has compiled the average rates on mortgages, organized by month and year, and from 30-year fixed rates, 15-year fixed rates, and 5-year adjustable rates. The first thing that jumps out at even a casual glance at these tables is just how low the rates have been for the past fourteen years.
The annual rate for a 30-year fixed mortgage was at 6.03%, and then, in the wake of the economic mess that was 2008, the annual rate steadily decreased until it hovered around 4%, with only a minor spike to 4.54% in 2018.
For additional context, after the 1981 housing crash mortgage rates peaked at a truly astonishing 18% during parts of that year, as a result of the Federal Reserve fighting the inflation that characterized the 1970’s economy. After that peak, the mortgage rates followed a similar pattern to the post-2008 trend, with the rates declining before leveling out during the 1990’s, this time at around the 7-8% mark, which is where that 2002, 20-year mark for the last time the rate was over 7% derives.
In terms of historical context, mortgage rates have actually been quite low, and for a good long while to boot. In 2020, the rate dipped below 3%. But then Covid happened, and disrupted the market conditions that made such rates feasible.
“The Federal Reserve made the decision based on what was happening in the world,” Melanie Mullins, Affiliate Director at the Huntsville Area Association of Realtors, told the HBJ. “Low inflation led to lower rates, and then we had Covid. Interest rates are rising right now because inflation is surging – not just here, but internationally as well. I would expect growth to slow as the Fed continues to raise rates.”
With that said, a slower rate of growth may not, on the whole, be such a terrible thing. The housing market leading up to the 2008 crash was a wild, largely unregulated frenzy, and when it finally broke apart, it took the global economy with it. Housing prices doubling in two years is neither normal nor sustainable. As painful as it may be, it is better to take a sharp hit now, instead of facing an unmitigated financial catastrophe later.
That’s a hard sell to a public that is prone to panic at the first sign of trouble, and that demands that everything be sunshine and peaches for forever and ever. Fortunately, I’m not running for office, so I can be upfront about this sort of thing.
Fortunately, Huntsville’s position as a hub for Federal spending provides some degree – emphasis on ‘some degree’ – of insulation to a likely recession, as the need for technicians to service the government’s needs, and the need for other industries to service the needs of said technicians, results in a continued demand for housing in and around Huntsville. This is not inexhaustible, nor is it total, but it does put Huntsville in a better position relative to a lot of cities in the United States.
So yes, the waters are choppy, and storm clouds are gathering, but Huntsville does have the tools to weather the storm. w
RECOGNITION
Huntsville Business Journal Welcomes Newest Guest Contributing Writer
The Huntsville Business Journal is excited to announce the addition of a new bi-weekly column from Alexander Duck, the journal’s newest guest contributing author.
Alex’s background focuses on educational and professional development. His bi-weekly article will utilize this past experience to bring forth useful tools that managers, employers, and employees alike can utilize to enhance workplace success.
His articles will focus on summarizing the lessons learned from his past experiences, and providing insightful articles and resources from all angles of Huntsville business. Primary article topics will include managing and developing soft skills, marketing, professional development, effective management systems, and workplace culture, to name a few.
“My goal for the audience of the Huntsville Business Journal will be to provide articles, from my past experiences, that really help take advantage of the unique culture present in Huntsville. The city is a very special place for businesses to start and to grow. We are such an interconnected community, and I feel like my articles can be a part of that same conversation,” said Alex in an interview with HBJ.
RECOGNITION
Innovate Alabama Taps Alabama Native to Serve as Organization’s Founding CEO
Innovate Alabama board members came together to vote in the organization’s founding CEO, Cynthia Crutchfield. An Alabama native, Crutchfield brings 40 years of experience to the role where she will help innovators grow roots across the state by spearheading Innovate Alabama’s programs, statewide engagement and mission of building a robust, inclusive economy through entrepreneurship and innovation.
Hailing from Montgomery, Crutchfield received an undergraduate degree in computer science from Alabama A&M University, one of the state’s 14 HBCUs. She then spent the next 18 years as a civil servant supporting the Departments of the Air Force and Navy followed by multiple information technology-focused leadership roles before founding her own IT services and consulting company in 2021, Crutchfield Management Consulting.
Crutchfield is charged with overall strategy and operations for Innovate Alabama and will collaborate with the board of directors to drive forward the organization’s mission, execute programs, advocate for policy solutions and engage with innovation ecosystem stakeholders in every corner of the state.
“Over the past four months, the CEO search working group has led efforts to select a CEO to lead Innovate Alabama into our next chapter,” said Rich Bielen, Innovate Alabama board member and CEO search working group member. “After learning about Cynthia’s breadth of knowledge and passion for our state’s entrepreneurial and innovation landscape, we believe she is a stellar fit for this role.”
RECOGNITION
ServisFirst Bank, a subsidiary of ServisFirst Bancshares (NYSE:SFBS), announces the addition of Michael Bishop to ServisFirst Bank Huntsville as Commercial Banking Officer.
Michael Bishop, Commercial Banking Officer
Michael Bishop joins ServisFirst Bank Huntsville as a Commercial Banking Officer with almost a decade of experience. Before coming to ServisFirst Bank, Bishop served as a Marketing Representative at Federated Insurance, where he gained valuable experience in client retention, new account acquisition, and cross selling. Bishop has experience in team leadership, strategic planning, communication and account management. He is skilled at partnering with business owners and key stakeholders in problem solving and strategic planning.
Bishop obtained his Bachelor of Science in Business Management from Jacksonville State University, where he competed for four years as an All-American on the university’s Division I baseball team, graduating in 2014.
