September 6, 2013

SMART MONEY: Credit union vs. bank -- what's the difference?

By Bruce Williams
Syndicated columnist

---- — DEAR BRUCE: Can you explain the difference between a credit union and a regular bank? My friends keep telling me that it is better to join a credit union. Also, do I need to be a teacher or in the military to join? — P.L., via email

DEAR P.L.: A traditional bank is owned by stockholders. The bank's mission is to provide a return on investment for the stockholders that eventually will be distributed to them, and the shares should increase in value.

A credit union is a different matter altogether. It has no stockholders; it is owned by its depositors. The consequence is that there are no profits to be earned.

A credit union may offer terms that are more favorable. Loans such as car loans and mortgages are available through credit unions, and oftentimes at very competitive prices. The downside is that there are many activities credit unions are prohibited from being involved in.

Some credit unions have narrow requirements that must be achieved in order to become a member. It could be that you must be a schoolteacher, a member of the military, or any number of other groups. But some groups are quite broad, and there is a wide variety of them. I am confident that there is a credit union in your area that will welcome you with open arms.

DEAR BRUCE: We are two married couples in our 50s, interested in buying lots within our IRAs by converting them to self-directed IRAs. Over the next seven to 10 years we would anticipate selling off the lots, keeping the proceeds within the IRA. We would hope to do this with an LLC. Your thoughts? — Richard, via email

DEAR RICHARD: You ask an interesting question with no absolute answer. You are interested in buying lots, speculating that they will rise in value, which they very well may. On the other hand, over the next seven to 10 years, they also may depreciate.

You didn't explain your knowledge of real estate and all the nuances of an investment of this kind, but unless you have a good, solid handle on real estate and the specifics of the area where you are considering investing, I think I would pass on this one.