Banks are probably the financial institution with which you are most familiar. They operate by using funding provided by a group of investors. Anyone, anywhere, can open a bank account. If the bank has a national presence, like Wells Fargo or Bank of America, you can access your account from any one of its branches. A bank’s board of directors ensures the bank’s investors get a good return on their investments. This is why, for example, banks often charge a fee if a savings account dips below a set point. Banks are as involved in the business of making money as they are in the business of holding your money.
Credit unions, on the other hand, are non-profit organizations. Only members of a specific community can join a credit union. This may initially sound like a negative trait — you cannot just walk into any credit union and access your account — but it means that the credit union’s interests lie in the interests of its members, and not in the interests of a board of directors beholden to a small group of investors. Because they are non-profit organizations, credit unions often provide benefits like higher interest rates on savings accounts, which is something that a profit-minded institution would be wary of. Credit unions do have boards of directors, but these are chosen by democratic votes held by the union’s members.
The best way to decide whether a bank or credit union is right for you is to exactly determine what your financial needs are. Do you want the convenience of widespread bank branches, in exchange for an adequate but smaller savings interest rate and fees upon fees? Do you want a financial institution in which you have a say, as well as more generous interest and loan rate options, even though you may not always live in that institution’s target community? Or do you want the best of both worlds: a checking account with a bank and a savings account with a credit union?
Determine what shape you would like your finances to take. Weigh the options between different banks and different credit unions--only then can you make the best financial decision for you. With whatever choice you make, another financial cornerstone will have been laid.