Credit unions are similar to banks in many ways. Both offer a variety of bank accounts for their customers to choose from and lend money to qualifying borrowers. But unlike banks, credit unions are nonprofit institutions. That means any money a credit union earns goes back to its members. As a result, credit unions can often offer more competitive rates and lower fees than some large national banks.
But credit unions have their drawbacks as well. Most only operate in a small area and they have membership requirements that restrict who can join. Their online and mobile banking tools often aren't as good as those you'll find with large banks, either. But they could still be a good fit for those who value customer service and don't travel often.
Types of bank accounts
There are four main types of bank accounts: checking accounts, savings accounts, CDs, and MMAs. We'll go over each one at a time below.
Checking accounts
Best for: People who want a safe place to keep the money they use to pay bills.
Not for: People who want to earn a lot of interest on their money.
You should open a checking account for money you plan to use for everyday spending. You can withdraw money as often as you like, as long as you don't withdraw more money than you have. (There are restrictions on withdraws from savings accounts, CDs, and money market accounts.)
Savings accounts
Best for: Those who want a low-risk way to grow their money.
Not for: Those who plan to withdraw money frequently from their account.
A savings account is a low-risk account where you can earn interest on your money. It's a great place to save for an emergency fund, a vacation, or a down payment on a home. However, you can only withdraw money from a savings account account a handful of times every month -- so it's not great for paying bills. Checking accounts are better for bills.
Money market accounts (MMAs)
Best for: Those who want to earn a high interest rate without sacrificing easy access to their money.
Not for: Those with a small amount of savings who cannot meet the minimum balance requirements.
If checking and savings accounts had a baby, that baby would be a money market account (MMA). MMAs often come with checks or debit cards, like a checking account. They also have high interest rates -- like savings accounts. However, they usually have high minimum balances. You'll have to be able to keep a hefty chunk of cash in the bank at all times if you want to have an MMA.
Certificates of deposit (CDs)
Best for: Those who want to earn a higher interest rate on their savings and don't need to spend that money anytime soon.
Not for: Those who think they'll need to withdraw their money before the CD's maturity date.
A certificate of deposit (CD), also known as a share certificate if you're using a credit union, is a special type of savings account that offers a higher interest rate -- but there's a catch. When you put the money into a CD, you're agreeing that you won't touch it for the length of the CD term. This can be anywhere from a few months to several years. Usually, the longer the loan term, the higher the interest rate. The best CDs can offer APYs of around 5%.