Letter Re: Credit Unions Versus Banks for Safety?

Good Morning Jim,
As I read today’s blog, I thought again about the safety of credit unions. As far as I have been able to discover, they have not jumped in to the derivatives like banks and mortgage companies did, and seem much safer than banks. Credit unions are mostly local and (though the requirements are often much less restrictive than they used to be) usually only have local residents as customers. Does anyone know any more on credit unions? I’ve long recommended credit unions to my friends and family in place of banks, since they usually offer lower loan, and higher savings rates than banks, with better service. Do you or any of my fellow SurvivalBlog readers have any input, or insight here? Thanks! God Bless, – R. in NH <><

JWR Replies:
In the event that panicked runs develop, most credit unions in general will be safer, on average, than banks. But rather than just assuming safety, you should investigate the reserve level and portfolio of your particular credit union. If any institution has a large exposure to derivatives trading or subprime real estate lending, then it should be avoided. And even if your credit union’s customers are for the most part credit worthy, you need to examine: A.) Is the credit union tied to one industry that will do poorly in an economic downturn? And, B.) If the credit union issues mortgages, then is the real estate in that community grossly over-inflated? If you live in an area where real estate prices have tripled or quadrupled recently, then beware!

Regardless of the risk level of your particular bank or credit union, don’t put all your eggs in one basket. Your money on deposit should be spread evenly between several institutions. Also, consciously differentiate between your short term cash requirements and longer term investments. In today’s volatile credit and currency environment, I advise keeping the majority of your long term investing assets in tangibles.