Credible takeaways
- Credit unions and banks differ in their profit status and business structure.
- While credit unions tend to offer lower interest rates on loans, they often have fewer branches and services than banks.
- When choosing between a bank and a credit union, consider your priorities in terms of cost, convenience, and customer service.
Whether you’re applying for a loan or looking for a place to stash your cash, it matters where you do your banking. Two main options are credit unions and banks. While both offer similar services for consumers, several differences could sway your decision.
Learn more about the differences between banks and credit unions so you can figure out the best place for your financial needs.
What is a credit union?
Let’s start with credit unions. A credit union is a not-for-profit financial institution that is owned by its members, often called “shareholders.”
“There's a great saying in the credit union industry that says, not for profit, not for charity, but for service,” said Dianne Owen, chief member officer and executive vice president of Fairwinds Credit Union based in Orlando, Florida. “So any money that's made for the credit unions goes back into the credit union,” she said.
Some credit unions were created to serve specific populations, such as teachers or government workers. You might have to meet certain requirements to become a member. Other credit unions are available to anyone who wants to join.
A credit union typically offers standard banking services, including:
- Auto loans
- Checking
- CDs
- Credit cards
- Home loans
- Personal loans
- Savings
Some also offer student loans, investments, insurance, and retirement accounts, too. These days, many credit unions offer ATMs, a wide network of partner branches, and digital and mobile banking as well.
What is a bank?
A bank is a for-profit financial institution where you can deposit and borrow money. There are small, local banks and huge, multinational corporate banks. A bank is directed by its shareholders and offers services to both personal and business customers.
You’ll find the same services at a bank as at a credit union, and some banks also offer wealth management, trusts, insurance, currency exchange, and complex business banking services for large businesses and corporations.
Key differences between credit unions and banks
To understand the difference between using a credit union or a bank for your money, let’s take a look at how they compare in a few key areas.
Ownership and structure
One main difference between credit unions and banks is how they are structured.
Credit unions are member-owned and not-for-profit, which puts their focus on serving members.
Banks are shareholder-owned and for-profit, with a focus on returning value to those who own stock in the company.
Interest rates and fees
Another key variation is what each institution charges and pays for deposits and loans.
Credit unions redirect the profits they earn to their shareholders. Therefore, they tend to pay higher yields on deposit accounts (like savings accounts). They also tend to charge lower interest rates on loans.
Banks are the opposite; you’ll typically find that you earn less interest on your savings deposits and pay higher interest rates on loans.
Accessibility and convenience
Access to ATMs and branch locations can vary and depend somewhat on the size of the institution and the network it’s part of.
Credit unions often have fewer branches. However, with the rise of shared branching, you may find that you can access your credit union’s services through another credit union when you’re away from home.
Banks, especially big banks, often have far more branches than a credit union. They may also have access to a wider network of ATMs.
Customer service and member benefits
The service and benefits you get will likely be a little different at a credit union vs. a bank.
Credit unions tend to focus on service to their community, including in-person services and financial education, to improve their members’ financial well-being.
Banks tend to focus more on features that may attract new customers.
Pros and cons of credit unions
Advantages of credit unions
- Better rates: If you want to boost your savings or get a good deal on a loan, make sure you take a look at credit unions.
- Community involvement: You’re more likely to find your local credit union backing the area’s youth sports or community organizations, for example.
- Lower fees: Credit union members often pay lower account fees than bank customers for similar products. Minimum balance requirements may be lower, too.
Disadvantages of credit unions
- Fewer branches: Although shared branching can improve branch access when you’re on the go, credit unions usually have fewer branches than banks.
- Membership requirements: You must qualify to be a member of a credit union. Membership might be based on your location, family, affiliation, or employment.
Pros and cons of banks
Advantages of banks
- More locations: For people who prefer to bank in person or often need to deposit cash, banks usually offer more branches and ATMs.
- Better features: Banks often offer more cutting-edge technology, such as mobile apps, than their credit union counterparts.
- Offers and specials: “Credit unions can and should be more competitive, being nonprofits, but not always,” said David W. Demming, a Certified Financial Planner at Demming Financial Services. Banks may run deals and incentives to attract new customers.
Disadvantages of banks
- Lower yields on savings: Banks may offer lower yields on certificates of deposit and savings accounts than credit unions.
- Higher rates on loans: Banks usually charge higher interest rates on a range of loan products, including personal loans, auto loans, and mortgages, than credit unions do.
How to choose between a credit union and a bank
Still trying to decide which option is best? Here are a few ways to help you choose:
Assess your financial needs
First, consider which services you need, such as checking, savings, withdrawals, deposits, loans, money orders, credit, insurance, or trusts.
Compare products and services
Next, compare the products and services at your chosen credit union to your preferred bank. Which has the services you need? Which has better rates and fees?
Consider accessibility and technology
Lastly, think about how you tend to do your banking: in person, on your smartphone, or over the phone. Make sure your chosen institution has the branches, ATM network, and technology you use most.
“You know, credit unions kind of have that stereotype of being a little bit less sophisticated in technology. And that's not necessarily true with some of the credit unions out there,” said Owen.
“So it's really determining what's important and then just doing the homework and seeing who's excelling at what you're looking for,” she said.
FAQ
Are my deposits insured at both banks and credit unions?
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