When you need to borrow money or find a place to keep your money secure, you have many options. You could turn to a bank for a checking account, savings account, loan or credit card. Or you could go to a local credit union.
At first glance, credit unions and banks may seem nearly identical. Both let you deposit and borrow money. But credit unions and banks work differently, and those differences could have an impact on everything from the interest rate you pay on a loan to the perks and services you enjoy.
Let’s review the differences between a credit union and a bank so you can decide which option works best for your financial situation.
- Credit unions are member owned and often offer lower fees and better borrowing rates, whereas banks are for-profit institutions focused on shareholders.
- Both offer similar core services, like checking accounts and different types of loans.
- The right choice depends on your financial profile, eligibility and whether you prioritize cost, convenience or digital services.
What Is A Credit Union?
A credit union is a not-for-profit financial cooperative owned by its members. Instead of earning profits for shareholders, credit unions return earnings to members in the form of lower fees, better interest rates and improved services.
To join a credit union, you have to meet membership eligibility requirements. Those can be based on where you live, the type of work you do or membership in certain organizations. For example, to join a credit union that serves teachers, you generally have to be an educator or work in education.
Once you join, you become a partial owner of the credit union. That means you have voting rights in certain decisions.
Credit unions typically offer:
- Checking and savings accounts
- Auto loans
- Mortgages
- Personal loans
- Credit cards
- Investment services
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What Is A Bank?
A bank is a for-profit institution that provides financial services to individual consumers and businesses. Unlike credit unions, banks are owned by shareholders and are designed to generate profits.
Banks can be:
- National banks with branches across the country
- Regional banks that operate in specific areas
- Online-only banks that do not have physical branches
Banks typically offer:
- Checking and savings accounts
- Auto loans
- Mortgages
- Personal loans
- Credit cards
- Wealth management and investment services
Because banks are profit driven, they tend to focus heavily on efficiency, scale and technology, including mobile apps, ATM networks and digital banking platforms.
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Credit Unions Vs. Banks: Similarities
Despite their different structures, credit unions and banks share many of the same features:
- Both offer checking and savings accounts.
- Both offer mortgages, auto loans, personal loans and credit cards.
- Deposits are typically insured up to $250,000.
- Most offer ATM services.
- Both are subject to regulations.
Differences Between A Credit Union And A Bank
How can you tell the difference between a credit union and a bank? Even though they offer many of the same products, they have some key distinctions:
- Credit unions are owned by members, whereas banks are owned by shareholders.
- Credit unions aren’t out to make a profit, but banks are.
- Credit unions commonly offer lower interest rates on loans and credit cards.
- Banks may offer more services and features, particularly when it comes to online and digital features.
- Banks are open to anyone, whereas credit unions require membership and eligibility.
- Both insure up to $250,000 in deposits per customer, but banks use FDIC insurance while credit unions use NCUA insurance.
NCUA Vs. FDIC Insurance: How Deposits Are Protected
One of the biggest similarities between credit unions and banks is that both offer federal deposit insurance designed to protect customer money if a financial institution fails. The difference is which agency provides that protection:
- Credit unions are insured by the National Credit Union Administration (NCUA).
- Banks are insured by the Federal Deposit Insurance Corporation (FDIC).
In both cases, deposits are typically protected up to $250,000 per depositor. If your insured institution fails, the federal government protects covered deposits up to that limit.
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Credit Union Pros And Cons
There are several benefits to using a credit union:
- Lower interest rates on loans and credit cards
- Potentially better interest rates on deposits
- Personalized customer service
- Often more flexible lending standards
- Typically offer lower fees than banks
- Typically have lower account balance minimum requirements
- Deposits insured up to $250,000
You should also know that federal credit unions actually have an 18% cap on most loans they give out, including credit cards. So it’s not just that you may be more likely to get a better rate at a credit union. It’s that there’s alimit to what they can legally charge.
Banks do not have a federal limit on what interest they can charge. However, in many cases, states typically set a maximum interest rate that banks must adhere to.
On the other hand, there are some drawbacks to using a credit union you should know about:
- Membership restrictions
- Typically fewer branch locations
- Potentially smaller ATM networks
- Potentially fewer credit card perks and features
- Often a weaker digital or mobile experience
In a nutshell, credit unions tend not to have the financial resources that banks have (especially bigger banks), so what you might gain in customer service, you could lose in terms of convenience.
Credit Union Shared Branch Networks
Many credit unions are part of the Co-op Solutions shared branch network. If you join a credit union that’s part of that network, or another shared network, you can go to branches of other credit unions within the network and have the same options for making transactions, such as using ATMs.
Your credit union should be able to tell you if it’s part of a shared network, or you can search the Co-op Solutions database to see for yourself.
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Bank Pros And Cons
There are a number of benefits to using a bank:
- No need to be a member of a specific group or profession
- Typically larger branch and ATM networks
- In some cases, a bigger suite of products offered under the same name
- Potentially better credit card rewards and perks
- Deposits insured up to $250,000
On the other hand, banks have the following drawbacks:
- Higher interest rates on loans and credit cards in many cases
- Typically higher fees than credit unions
- Typically higher account balance minimum requirements
- Less personalized customer service in large institutions
- Often stricter borrowing requirements
Credit Union Vs. Bank: How To Choose
Choosing between a credit union and a bank often boils down to your preferences. In some cases, however, your financial profile could help dictate your decision.
You may want to choose a credit union over a bank if:
- You want to save money on interest when you’re taking out a loan or opening a credit card
- You prefer a more personal banking experience
- You have a shorter credit history or weaker credit score and want more flexibility when borrowing
- You can meet the membership requirements
- You don’t do a lot of traveling and therefore don’t require an extensive network of branches and ATMs
- You prefer to do your banking in person and don’t often use mobile banking apps
You may want to choose a bank over a credit union if:
- You have a strong credit score and are likely to qualify for a competitive interest rate on a loan
- You want a credit card with lots of features and rewards
- You travel a lot and need access to branches and ATMs all over the country
- You do most of your banking online and want a seamless digital experience
That said, you don’t necessarily have to choose between a credit union and a bank. You may decide to use both at the same time for different purposes.
For example, you may be able to qualify for a lower interest rate on an auto or personal loan at a local credit union than at a bank. But you might prefer to have a checking account at a big bank if you tend to travel a lot or simply want access to a wider network of branches and ATMs.
In that case, you could get a loan from a credit union you join and open a checking account at a bank. Credit unions do not require you to do all of your banking and borrowing with the same establishment, and neither do banks.
Just keep in mind that some institutions may offer loyalty perks if you maintain multiple accounts, such as a checking account, savings account and loan. You’ll need to compare offers between the banks and credit unions near you to see what makes the most sense.
The Bottom Line: Deciding Between A Credit Union And Bank Depends On Your Own Preferences
Credit unions and banks could both play an important role in your finances, but they serve slightly different purposes. Credit unions are built around member ownership, often providing lower interest rates and more personalized service. Banks, on the other hand, commonly have wider branch and ATM networks, and they usually offer a broader range of financial products.
When it comes to credit unions vs. banks, there’s no “better” option. The ideal choice depends on the specifics of your situation. And since you don’t have to choose one over the other, you can turn to a credit union for certain needs and a bank for others to enjoy the best of both worlds.
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Maurie Backman
Maurie Backman has more than a decade of experience covering personal finance topics that include mortgages, loans, retirement, Social Security, and investing. Prior to becoming a full-time writer, she worked in the financial industry as well as in product design and marketing. Maurie holds a bachelor's degree from Binghamton University, where she studied creative writing and finance. She was happy to combine her two areas of study into a career that allows her to educate consumers on a host of financial topics.
