Founder Federal Credit Union, a credit union in Lancaster, South Carolina; will be giving $10 million back to its members in the form of a bonus dividend. About half will go to depositors based on their interest earned and the other half will go to borrowers based on their interest paid. There’s no doubt that its 200,000 members are thrilled.

This illustrates the fundamental difference between credit unions and banks. Both pay out dividends and both pay them to their “owners.” The difference is that the depositors and borrowers are the owners of the credit union and that’s why it’s going back to them. Commercial banks pay dividends also, but the customer isn’t the owner. Shareholders are. Founders Federal has returned $30 million dividends in the past eleven years. This is just one of the reasons why credit unions kick ass.

Another warm and fuzzy moment? Bonuses for employees. $1,300 for full timers and $650 for part-timers.

When my sister was in college, she used the ATM a lot. Whenever she needed some money, she’s go to the machine and pull out $20. Sometimes she’d check her balance. Then one day she realized, or my dad realized, that she was using an out of network ATM which charged around $5-7 (combined) each time she withdrew money. For every $20 she withdrew, she was paying a $7 fee. Every time she checked her balance, that’s another fee. Over the course of a semester, she racked up around $100 in unnecessary fees. In her case, she wasn’t aware it was happening but it’s a hard pill to swallow nonetheless.

Fortunately, with a few quick tips, being dinged by ATM fees is completely avoidable.

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Credit Unions kick ass.

If you found yourself complaining about the “Too Big To Fail Banks” and still have your money at one of the TBTF banks, then you, my friend, have lost the right to complain. If you want to remedy that, or if you simply want better rates, then a credit union is a fantastic almost-perfect substitute for a commercial bank.

The key difference between a credit union and a commercial bank is that the depositors and borrowers of a credit union are its shareholders. With a commercial bank, the shareholders are the owners of its public stock or investors in the corporation. When the credit union counts you as a shareholder, it gives you better rates on your deposits (high yield savings accounts may still offer higher rates) and better rates on your loans. Finally, credit unions are NCUA insured up to $250,000, just like commercial banks and the FDIC, so your money is safe.

The main trade off is that credit unions are smaller and so they lack the enormous geographic footprint of much larger banks.

So how do you find a good credit union?

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I just watched a short Bankrate video on the decline of free checking and how many banks are pulling their “free” no interest checking accounts off their menu of options.

It’s becoming pretty clear that “free checking” was, at least in the banking industry, code for “free checking paid for by enormous fees.” Now that the rules for fees like overdraft/NSF fees have been overhauled, banks can no longer live off free checking the way they used to. I’ve long argued that free checking wasn’t actually free because you are paying for it with your lack of interest income. Your opportunity cost is the interest you would’ve earned in a high yield savings account.

So if you want a free checking account, where you should you look? One answer – credit unions.
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The recent economy woes have not been kind to banks. It seems like every weekend a bank is failing (over 60 so far this year) and mainstream media is piling on. Four of the thirty two companies in Consumerist Worst Company in America 2010 bracket are financial services companies. Chase, Citi, Capital One, and Bank of America, an eventual Final Four participant (though none of them stood a chance against Ticketmaster for sheer “worstness”). Slamming a bank is just too easy… but it’s also a little unfair.

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This week Liz Weston wrote about how to shop for a new bank and it made me think about how we chose the banks we work with now. For us, the criteria for judging a checking account differed from the criteria for judging a savings account. We use the two different types of accounts for different purposes, so the criteria for picking the “best” for us will vary between the two.

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Credit unions exist to help its members. Commercial banks exist to enrich their shareholders.

You read that right. Credit unions are unions that exist to help its members. That’s why they often have better interest rates on both loans and deposits. Commercial banks are businesses. Their sole purpose is to figure out how to make more money from its customers (you!). Interest rates are often very low (or nonexistent), loan rates are often competitive, and they always try to sell you new products because you are a customer.

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If you’re graduated in May (congrats!), I recommend reading David Griner’s post about five things he’d do if he were graduating in May. They contain five solid tips that can help you in your career.

If you haven’t yet joined the workforce but are planning to in the next few months, I wanted to give you five things you should do before you start working.

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Patelco Credit Union is a credit union out in California that was started, in 1936 with $500, to support the financial needs of the employees of Pacific Telephone & Telegraph Company. Since then, they’ve grown to $4 billion in assets, 250,000 members, and now serve over a thousand businesses and communities.

So, why mention Patelco? I mention them because they offer a 7.00% APY new member certificate of deposit that more than doubles the highest rate on my list of best certificate of deposit rates. OK, before you get excited, the New Member CD has a maximum balance of $1,000 and a minimum balance of $1,000 and is, effectively, a $70 bonus for new accounts.

So why bother even mentioning this when most of us won’t qualify to join the credit union?

It’s a little reminder that your local bank or credit union might be the best offer available even if you don’t see it listed on nationally available rate lists. If I was eligible and looking for a credit union, I’d give Patelco a good look. The new member CD promotional offer gets me in the door. The 2.73% APY CD 12-23 months is pretty competitive and their 5.00% APR 30 year fixed mortgage loans is not bad, each probably beats locally available banks in those categories.

I’m not recommending that you open a Patelco Credit Union account (but you should have a credit union account somewhere) but I do recommend that you check your local banks and credit unions to see how their rates compare to the bigger banks, you may see something you like.

This is the first edition of our Personal Finance Foundation Series where I discuss the very basics of foundation-type personal finance topics. The topic of this post is Banking.

I was fortunate that my first real experience with banking was with a local credit union. Credit unions are really great about welcoming new members and educating them about everything. Commercials banks, while still cordial, simply don’t offer the same types of services that credit unions do. My mom and I opened a joint banking account a local credit union when I was fourteen and I was excited to even have a laminated blue card with my account number and credit union phone numbers! I still have the card in my desk drawer, I still have the account open, and it was a nice warm and welcoming introduction to the banking world.

That, however, seems to be atypical. Many people are introduced to the banking world either through the nastiness of credit cards or by walking into the antiseptic branch of a major bank. You open an account, direct deposit your paycheck, and feel like a number in a database. There is no education, no explanation, just an assumption that “you’ll figure it out eventually.” Well, unfortunately that isn’t enough because “figuring it out” usually results in you being dinged on fees so let’s start from the basics and go through what banking is.

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