Whether you’re starting an nonprofit or looking for a new home for your organization’s money, the question often arises as to whether you should choose a bank or a credit union so let’s run through the pros and cons of each to help you decide what’s right for you.
On a basic level there’s not much difference between the two. Some credit unions don’t have the membership or sponsorship requirements they used to and most financial institutions no longer charge to have a checking account, etc. so if you’re looking for general checking account services, either will work.
Credit Unions
These are essentially membership nonprofit organizations. They are owned by the members (customers) who are buying a share in the organization by opening bank accounts.
Some characteristics specific to credit unions include:
- one location or maybe a handful of branches in a specific geographic area
- may have limited ATM access
- may have limits to the number of transactions that can be processed in a single day
- may not have mobile banking
- if they have mobile banking, they may have lower limits to daily deposits
- may have membership requirements in order to open an account
- members with accounts need to specify an owner of the account
- sometimes have more stringent paperwork requirements for opening an account
Banks
Banks are structured differently than credit unions but not all banks are created equal. (For more information on choosing the right bank for your organization, check out the blog post Which bank is right for you?)
Bank characteristics include:
- one location or maybe a handful of branches in a specific geographic area
- ATM access depends on the bank
- may not have mobile banking
- generally straightforward paperwork requirements for opening an account
Generally I’d recommend banks over credit unions as I’ve worked with both with my nonprofit clients and here’s a couple of situations that lead me to this recommendation.
A client with credit union account sold tickets to a really popular event. The ticket fee fed from the ticketing platform directly into the bank account which at some point just stopped accepting the transactions so purchasers started getting error message and couldn’t purchase tickets. Turns out the credit union had a limit on the amount and/or number of transactions that it would process from a single account and we’d hit it. We were selling $25 tickets and the system stopped at about the 200th person and then the angry and frustrated emails and calls started pouring in. We were able to manage the situation but it was difficult from a PR and administrative perspective.
Another situation involved account ownership. I went to the credit union with another nonprofit client so I could be added to the account. We’d been told on the phone that we could just show up in person at a branch and take care of it but there were two major issues: one is that it was not simple to add me, we needed to produce meeting minutes that stated I had the role at the organization that I said I did. We didn’t have them so had to make another appointment. The second piece was that once we were at the second appointment, we had to specify an individual who was the account owner. Unlike banks, credit union accounts have to have one person who “owns” the account, an organization cannot “own” it. So that bank account is actually part of that person’s personal financial holdings and not controlled by the organization. Needless to say, this was a rather surprising revelation especially as we learned a previous employee had setup the account and she was the “owner”. Had she passed away, the organization’s bank account would have to be removed from her estate and I can’t imagine how difficult and costly that would have been. We ended up adding me to the account, making the founder the “owner”, and for now we have documentation that indicates the account belongs to the organization and not to her until we can move the account to a bank.
Longtime readers will know that I’m a big proponent of having organizational information stay WITH THE ORGANIZATION and this is one of those times. No one person should have complete control of an organization’s finances and you need a financial partner who will be a good fit for both best practices and day-to-day activities.