Retirees get their own credit union

They're already one of the fastest-growing parts of the financial services business, but credit unions are about to get a surge - or at least a fair number - of new members. Last week's announcement that the American Association of Retired Persons is opening its own AARP Federal Credit Union is likely to bring new attention from bankers and thrift executives. They have been concerned about the growing force of credit unions offering low-interest loans, high-interest savings accounts, and very low fees, since, with their volunteer help, credit unions have much lower overhead.

Already, there are more than 16,000 credit unions in the United States, with some 58 million members, says a spokeswoman for the Credit Union National Organization, a trade group. The largest of them serves civilian and military employees of the US Navy and has about 821,000 members, she said.

But the credit union the AARP offers its 29 million members will, for now, be somewhat more limited in scope than the more common credit unions, typified by a small office across the street from a factory gate. Still, the potential is there for fierce competition for the low end of the banks' and thrifts' business: savings, credit cards, and personal loans. If only 3 percent of AARP's members joined the credit union, it would be larger than the Navy's.

AARP decided to start its own credit union partly to help widows get their own credit cards, says P.A. Mack, president of the new credit union.

``We found in surveys over the last couple of years that many people, especially widows, were denied credit cards because they did not have a credit history of their own,'' Mr. Mack said. ``The card they were carrying was in their husband's name, and when he passed on, the credit was not extended to her.''

Because people in AARP's age group ``tend to be net savers instead of net borrowers,'' Mack adds, the widows are seen as a good risk, even if they are living on a fixed income from a pension and social security.

The credit union's Visa card will charge 14.9 percent annual interest on balances carried beyond 25 days and will have a $10 annual fee.

The card will be handled by BancOne in Columbus, Ohio, which in addition to looking at income, will consider the value of any property and securities, as well as supplemental income in deciding on an application. Most other credit card issuers look only at income and credit history for these evaluations.

BancOne will also offer AARP Credit Union members certificates of deposit with yields - as of last week - of 5.6 percent on six-month CDs, and up to 7.7 percent for five-year certificates. While these yields are fairly low compared with those of many banks and thrifts around the US (the national average for six-month CDs is 6.92 percent and 9.56 percent for five years, according to Bank Rate Monitor, a newsletter), the minimum deposit at the credit union is just $250.

For now, Mack says, the credit union will not offer loans, except for cash advances on the credit card. Personal loans ``will come a few years down the road,'' he says.

Also for now, AARP members will have to contact the credit union by mail, although a toll-free 800 phone number will be made available later. The address is AARP Federal Credit Union, PO Box 182151, Columbus, OH 43272. There's a $5 fee to join.

The fact that AARP members will have to deal with their new credit union entirely by mail and, eventually, by telephone is one reason bankers may not be overly concerned about the competition just yet.

``My instinct is that it would not pose that great a challenge,'' says Fritz Elmendorf, spokesman for the Consumer Bankers Association. ``Older people don't seem to like to use automatic teller machines or bank by mail. They like to see that teller.''

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