"Occupy Wall Street" protestors have been urging commercial bank depositors to close their accounts and join credit unions (CU). With commercial banks charging substantial fees on services and tightening personal and business credit, some people are ready to heed the protestors advice. However, emotion is not a useful guide in making financial decisions.

There are signs some banks are resisting customers' efforts to close accounts, however, one should understand how a CU operates before rushing to switch accounts.

Are CUs really a positive alternative to commercial banks, which with millions of individual and business customers could be really "too big to fail?"

One of the usual criticisms against commercial banks is that they use depositors' money to lend to other people, mainly businesses, while relentlessly imposing fees on the same depositors. While CUs also lend depositors funds, they are membership organizations whose members are, technically, involved in lending decisions.

Not-for-profit

Credit Unions are not-for-profit organizations, owned by their members or depositors, and offer an array of financial services including a variety of deposits and loans like commercial banks. However, to be a CU member one has to meet stipulated criteria. The rules of most CUs allow members to vote and/or offer to serve on the organization's Board of Directors. Because of this membership feature, some consumers prefer placing their funds in a CU where they can, theoretically, manage their own financial interests, rather than being subject to the rules of stockholders who control banks.

Because CUs do not pay commercial taxes (due to their not-for-profit status) they can afford to charge members lower fees than banks. However, because most CUs have fewer branches than commercial banks they are sometimes more crowded, resulting in comparatively weaker service than banks.

But, as the economy constricts, more people are willing to sacrifice good service for lower fees. This is proven, according to a CBS TV report, by CU's membership growth of 11 percent in the third quarter this year, with some 90 million Americans being CU members.

Although most CUs are membership (teachers, nurses, church-members, civil servants, etc.) organizations, they have opened their doors to almost any customer who meets their basic criteria.

There is a misconception that placing deposits in CUs is riskier than depositing with commercial banks. The fact is, deposits of CUs are insured by the National Credit Union Administration (NCUA), a federal entity that operates similar to the FDIC that insures commercial bank deposits. The NCUA also charters and supervises CUs and insure deposits up to $250,000. So, there aren't really any risks to maintain a savings account, or certificates of deposit in a credit union.

An important aspect of CUs is that they compete aggressively with banks in making housing, automobile and cost-of-living loans. Usually, their interest rates are lower than bank rates; currently approximately one percent less for auto loans,.40 percent less. for mortgages, and over 1 percent for home equity loans. Most CUs avoided involvement in the sub-prime loan market mortgage market, and therefore incurred less risk in continuing with loans.

An important reason why CUs offer lower interest rates on loans, and higher interest on deposits, is that the profits of CUs are rerouted to their members, and not paid out to investors, like the banks do.

To enhance their competition with banks some credit unions now offer credit cards, but at lower rates than banks.

Another misconception is that CUs do not charge fees like account-overdraft and late-payment fees. They do, but the key difference is that CU fees are usually lower than bank fees.

The services CUs offer depend on their membership size. Typically, larger CUs offer similar services to those offered by commercial banks.

There are basic differences between banks and CUs, but it is the ultimate responsibility of consumers to carefully assess their banking needs and their financial capabilities, before deciding to close commercial bank and open credit union accounts.