The main function of a bank, of course, is to hold onto your money for you. It makes its profits by investing that money or loaning it to other customers. If you open a savings account you’re basically loaning money, which you get paid back in the form of interest. As with any other business, it is expected to show a profit for its investors. In order to beat the competition, it must engage in not only advertising, but also lobbying to make sure their profit margins are not harmed by governmental regulations. They also have to perform a great deal of risk assessment in order to make sure their investments don’t hurt the bottom line.
Credit unions have been around in the U.S. since 1908, when the first one was founded in Manchester, NH. They differ from banks in that when you deposit money, you’re actually buying shares of the company. Membership in credit unions is always restricted to a certain group, such as workers in a certain industry, members of the military or people who live in a certain region of the country. However, it is extremely easy to find one to join.
If you open an account, it will probably be called a “share draft” or something similar. This is because you’re not a customer, but rather, an owner. Credit unions typically are not owned by any type of corporation, nor are they run for profit. Any extra money they make are used to offer better rates on savings accounts and loans, usually resulting in advantages such as lower fees. Whatever money is left over is distributed to members through dividends.
Because credit unions tend to be smaller and more locally focused, members may find it hard to withdraw money without going to a branch. Even using an ATM in another part of town could mean paying a significant fee. In addition, there are some services that may not be available, such as online bill pay.