Use Credit Unions to BEAT the S&P500 Index

Updated: Nov 2, 2019

This is your guide to finding credit unions with incredible rates that beat, or at least come close to, the S&P500

Credit Union Churning

No matter who we talk to there seems to be at least one credit union in the area that provides a lucrative rate for a savings account (We've even seen 7%!). Where's the catch you ask? Well they usually come with a cap to the amount you can put into their accounts. Fortunately for the reader, we have techniques that'll help you make the most out of it.

Stellar Credit Union Rates Example

In Massachusetts there is a credit union called Jeanne D'Arc Credit Union (JDCU) that will offer 7% on the first $500 and 0.15% thereafter. If you had $505 or less this would be a great way to grow your savings account (There is a $5 membership account required that doesn't gain interest - more on this later). Once you exceed the maximum you can evade the measly 0.15% by transferring the excess into another account.


Now let's see the difference in using credit unions:

  • OPTION 1: $1,000 in an Ally Bank Savings Account Making 2.2%

  • OPTION 2: $495 in Ally Savings Bank and $505 in JDCU (Everything gained from this will be put into Ally)

OPTION 1

OPTION 2

As you can see, the difference after ten years can be nearly $300. Imagine what would happen if you doubled up with 2 credit unions! And if that wasn't enough it involved relatively no work on your behalf.


Other Advantages

Similar to banks, credit unions may also have sign on bonuses and referral programs that will help you make more money by holding an account.


Disadvantages to Look Out For

There are a few notable weaknesses to this approach however. First, the more accounts you'll open the more you'll have to keep up with them and we prefer to keep everything automated and passive. You can use apps like Mint and automated transfers to alleviate most of this though. Although it gets a little tricky if you start finding better alternatives and you need to drain your accounts and put money elsewhere. Additionally, this cannot be scaled up. Credit Unions mostly require you to work or live in the area or be related to someone who has an account. So you won't be able to find opportunities for large amounts of money. But for someone starting out or looking for a better place to store your emergency fund this can be quite rewarding.


You should also be wary of any minimum balances that are required to open a credit union; these can eat at your return a bit. In our JDCU example we require $5 to have the account. So if you're making 7% on $500 and 0% on $5 you're real rate of return is 6.93%. Luckily this is still a healthy amount.


((How much is making interest * interest) + (How much is in membership account * membership interest) / total)

((500*0.07+5*0.00)/505 = 0.0693)


Author's Notes

What is the best way to find credit unions like this one for you? A quick search into google for, "credit unions near me" will show you all of them in your area. From there you'll need to look into all of the minimums, fees, and interest rates on your own. You can also ask your friends and see what interest rates they have found. Another great resource is doctorofcredit.com which can show you most of the high-yielding accounts that you have access to nationally and regionally. Make sure to do research and look for yourself after though in case this link isn't up to date but it's still a wonderful resource.

 

Looking for finance and self help books to read? Try these!


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