In turbulent times, more turning to credit unions

In a turbulent economic time that's resulted in increasing frustration with banks, more people and more dollars are heading toward credit unions, statistics show.

What's less clear, however, is whether that money is coming from banks or from other less safe sources, like mutual funds and other investments.

At the end of 2009, credit union lending was up in several types of loans while bank lending was down, according to the Credit Union National Association. And for the first time in recent years, credit union deposits grew at a faster pace than bank deposits. The difference was stark, too: Credit union deposits were up 10.3 percent last year, but bank deposits rose only 2.1 percent.

"We've seen a huge influx in savings in the last 18 months," said Pat Keefe of the credit union association.

Robert Allen, president and chief executive of Farmingville-based Teachers Federal Credit Union, one of the largest credit unions in the nation, said it's clear to him, at least, where the money is coming from.

"It's coming from banks," he said. Banks that have experienced trouble have to regain their financial footing by restricting lending and shrinking deposits. When customers shed by those institutions look for new places to bank, Allen said, credit unions are more attractive than ever.

Because they are member-owned and not-for-profit, credit unions can offer better interest rates on deposits, loans and credit cards and usually charge lower fees than banks. More credit unions have loosened membership requirements, making it possible for almost anyone to join, and building new branches makes them more visible, Allen said. The Credit Union National Association says 1.2 million people joined credit unions last year.

Teachers Federal, for example, has been around since 1952 but has never been positioned as well. It's available to anyone who lives or works in Nassau and most of Suffolk and now has 21 branches.

"I wasn't down the street before," Allen said. "There's definitely a benefit by being visible in the area."

Geraldine Light, a vice president at Municipal Credit Union of Manhattan, said balance transfers on Municipal-issued Visa cards show people are leaving banks. They've tripled from $200,000 in January to $600,000 in March, she said.

That's a response to how banks often raise interest rates when users are late with payments or exceed their credit limit, said Municipal president and chief executive Kam Wong. Most credit unions don't engage in that kind of "penalty pricing," he said.

Others, including bankers, were less confident that credit union members were coming from banks necessarily.

"It's hard to really track where this money is coming from," said Keith Leggett, a vice president and senior economist for the American Bankers Association.

But Leggett said there's no doubt that credit unions are making a determined effort to be people's primary financial institution.

"What they want to do is get the whole wallet," he said.

Leggett said consumers should shop carefully before choosing. Credit unions in most cases will offer better rates, and deposits are as safe in a credit union as in a bank - both are federally insured - but a financially troubled credit union could cut interest rates on deposits, Leggett said.

Credit union failures, however, are comparatively rare compared with bank failures. So far this year there have been nearly 70 bank failures, compared with just a handful of credit unions that have gone under.