You’ll need the best bank or credit union as a banking partner for life’s major events. Then do all your banking with that one bank or credit union.
But what sets one bank or credit union apart from the others?
Let’s answer that question from a different angle than what you typically find while doing online research.
At the end of the article I’ll wrap things up with top tier bank and credit union recommendations. And I’ll even let you know which I prefer and recommend, a bank or a credit union.
What Really Sets Them Apart
Well, it’s not how high (ok, low) the interest rate is on your savings or checking account. None of them have an interest rate on those accounts that will make you a millionaire.
What sets them apart from one another is how they handle the major transactions in our lives. Specifically, which bank or credit union is more likely to give you the best auto loan or mortgage approval? Will they give you multiple auto loans if you have a growing family? Which bank or credit union can help you with a VA Home Loan? And which bank or credit union has member programs that truly make a difference?
Now let’s dive into those topics in a bit more detail.
Used Auto Loans
When you go to purchase a used vehicle, there are two numbers that the bank or credit union will look at. First, how much are you going to pay for the vehicle. Second, how much is that vehicle worth.
Clean Retail or Clean Trade-In
And that’s where it gets really interesting. Banks and credit unions typically use NADA to let them know what a vehicle is worth.
Credit unions more often than not use clean retail. But banks almost always use clean trade-in.
Why does that matter? Because the bank or credit union is trying to determine the loan to value of that loan. Simply put, the loan to value equals what you are going to pay for the vehicle divided by what that vehicle is worth. The higher the loan to value, the higher the risk to the bank or credit union. And the higher the risk to the bank or credit union, the higher the interest rate will be on your loan.
Now you know what that means. A higher interest rate on the loan means that vehicle will cost you more over the life of the loan than if you got a lower interest rate.
An Example of Clean Retail versus Clean Trade-In
Here’s a link to an example (2016 Toyota Corolla):
Clean retail is $14,050, but clean trade-in is only $11,825. That’s a difference of $2,225!
Now for the sake of argument, let’s say you were going to pay $14,500 for that car. Well then, the loan to value base on clean retail would equal 103%. Not too bad. But the loan to value on clean trade-in would be 123%.
That’s a huge difference in loan to value. In fact, many banks are hesitant to issue a loan on a vehicle with a loan to value over 120%. And if they do approve the loan, you can bet the interest rate will be higher than with a loan to value of 103%.
Here’s the point. When it comes to used auto loans, more often that not, a credit union will give you a much better loan approval than a bank.
Multiple Auto Loans
This could definitely become a reality for you if you have a growing family. And I hope all of you do because it’s truly the most wonderful part of life!
Credit unions are much more likely to give you multiple auto loans for your growing family than a traditional bank. Better yet, they’re more likely to evaluate each loan individually. And as a result, you’ll probably get the same low interest rate on auto loan for child number three as you got on your own auto loan.
That will not be the case when you ask a traditional bank for auto loan number three. The bank will start asking all sorts of questions, like “who’s this third car for.” They’ll start looking more closely at your debt to income and payment to income ratios. Never mind the fact that you’ve never been late or missed a payment and have paid all your loans off early. And after they ask you all those questions and more, if they give you an approval, the interest rate will be higher than it should be. Or would be at a credit union.
As I mentioned at the beginning of this article, you’ll need the best bank or credit union as a banking partner for life’s major events. Well, this is a really good example of the right banking partner, a credit union in this case, making a big difference in your financing life.
Credit unions win this battle against banks time and time again.
VA Home Loan
This is a big deal for those of us who are veterans. But it’s not nearly as important to folks who aren’t veterans. Nor is it really important to banks that don’t have a lot of veterans as customers.
All that being said, Navy Federal Credit Union (NFCU) and USAA are the subject matter experts when it comes to processing VA Home Loans. And of the two, NFCU is the better of the two banks. No offense to USAA, but when insurance is your primary business, not banking, it’s kind of hard to compete the largest and best credit union on the plant. And that’s NFCU, hands down.
ATM Fees
This may not seem to be a big issue for people who don’t move around a lot. But for those of us who do, it can be a big deal. Fortunately, the 21st century has seen a lot of financial institutions waive, or reimburse, ATM fees charged by non-member ATM machines.
But not all of them do. So be careful here. If you pick a regional bank, then move to a different part of the country, you may run into this problem.
And if you pick an online bank, then you really need to look into ATM fees. You should also research how you make cash deposits if your bank doesn’t have any ATM machines.
Loan Interest Rates
As mentioned earlier, credit unions use clean retail when assigning a dollar value to used vehicles. A traditional bank just can’t compete when it comes to interest rates on used vehicle loans. And that’s because a traditional bank will almost 100% of the time use clean trade-in.
New vehicle loans may be a slightly different story. Meaning, there may not be that big a difference in the interest rate on a new vehicle loan between a credit union and a bank.
That being said, many local credit unions have special interest rate promotions at varying times throughout each year. And when they’re offering those crazy, low interest rates, the traditional banks just don’t stand a chance.
Credit Card Programs
This really ends up being a wash between credit unions and banks.
But remember the goal here. You’ll need the best bank or credit union as a banking partner for life’s major events. Then do all your banking with that one bank or credit union.
Don’t get suckered down a rabbit hole because this one bank has a super credit card program you just can’t find anywhere else. Do that and you’re splitting your resources between banks and that means you lose what little leverage you may have.
The first key with a credit card is to NEVER carry a balance.
Credit Card Utilization Rate
The second key is to never let your credit card utilization rate exceed 30%.
Now what exactly does that mean? Let’s say your credit card maximum available limit is $1,000. Well, 30% of that is $300. So, in this case, you would never want to charge more than $300 on that credit card. And that’s because your credit score will drop significantly once you go over a credit card utilization rate of 30%.
The Only Reason You Need a Credit Card
Keep this in mind when it comes to credit cards. The only reason you need a credit card is because you need a minimum of three lines of credit for some major loan approvals. Examples would be your first auto loan or your first home loan. Many banks will not give you a loan as a first-time auto or home buyer without those three lines of credit.
Finally, NEVER use a credit card to buy something you can’t pay for in cash.
But I digress.
Again, there really doesn’t seem to be a huge difference in bank or credit union credit card offerings. Most have credit cards to offer. And most have credit cards with zero annual fees.
Member Services
You’re only a member with a credit union. And that can make a huge difference. If you partner with a bank, just understand that you’re a customer, not a member.
And I’ll cut straight to the chase here. Navy Federal Credit Union (NFCU) has by far and away the best membership programs out there.
Not the least of which is their Member Mall. And that mall is huge. As of now, it has over 1,000 member stores. I’ve never found something online that I couldn’t find in the Member Mall. And each purchase at the Member Mall generates reward points. You won’t find another credit union or bank that has anything even close to the NFCU Member Mall.
Does Your Length of Time as a Customer Matter
It better. Especially if you’ve never been late on a payment.
If you’re stuck with a bank where all the business you’ve done with them over the years doesn’t seem to matter, then it’s time to make a switch! Because I can assure you there are banks out there, especially credit unions, where customer loyalty does matter.
Recommendations
You’ll need the best bank or credit union as a banking partner for life’s major events. Then do all your banking with that one bank or credit union.
I hope the above information has begun to help you narrow down your options.
First you have to decide if you want to partner with a bank or a credit union. Then it’s simply a matter of picking which bank or credit union to join.
Banks
The links below have current listings of top ranked banks:
The Balance: The 8 Best Banks of 2019
Nerd Wallet: 5 Best National Banks of 2019
Remember, you’re going to pick a bank that you will do all of your banking with. So, research each of them carefully and thoroughly.
You’ll notice some banks just keep coming up in the top bank lists. Three such banks are Ally, Chase, and Capital One. And it’s no accident that they keep popping up on those top ten or top fifteen lists. It’s because they’re really competing for your business.
Credit Unions
When it comes to credit unions, Navy Federal Credit Union (NFCU) is the best. Hands down.
So, who can join NFCU? Click here to find out.
If you meet the membership requirements, you need to join NFCU. Period. End of story.
But not everybody has access to NFCU. So be sure to check out your local credit unions. Remember, you become a member when you join a credit union. And any credit union worth your business will have membership benefits that are hard for a conventional bank to beat.
Conclusion
I’ve spent years with the same credit union. And I ‘ve done business over those same years with conventional banks.
And I now do ALL of my banking with that same, single credit union. Everything’s better with a credit union. The customer service is better; my customer loyalty to them makes a difference; their credit card programs are better; their membership programs are better; their loan interest rates are better, and on, and on.
If you’re with a credit union now, you probably know what I mean.
If you’re with a bank, then you need to check out a credit union.
Next Steps
You’ve made it this far! Keep up the good work.
Once you’re all set with your banking partner, it’s time to move on to Stepping Stone #2: Living Expenses. In this step you’ll learn just how much money you really need in your emergency fund.
