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Key takeaways
- Banks are for-profit institutions owned by investors, while credit unions are nonprofit organizations owned by their members.
- Credit unions may offer better interest rates and lower fees, but banks often provide superior technology and broader access to branches and ATMs.
- Consider membership requirements if you’re interested in a credit union, as not everyone may qualify to join.
Choosing a place to keep your money is an important decision. If you’re deciding between a bank and a credit union, it’s helpful to understand both how they’re similar and where they differ. This guide will compare banks with credit unions, including their interest rates, fees, and customer service, so you can decide which option better fits your financial needs.
What is a bank?
A bank is a for-profit financial institution owned by investors or shareholders.1 Banks offer a wide range of financial services to the general public and businesses. Deposits in a bank are insured by the Federal Deposit Insurance Corporation, or FDIC, which provides protection for your money.2
Banks aim to generate profits for their shareholders, so they may not offer the best rates and fees. However, they often provide extensive branch networks, advanced technology, and a variety of accounts to serve diverse customer needs.
Banks usually offer the following types of financial products:
- Checking accounts
- Savings accounts
- Certificates of deposit (CDs)
- Various loan types
You might have the option of in-person, online, and mobile banking, as well as customer support at brick-and-mortar locations or by phone, email, or chat.
What is a credit union?
Credit unions are nonprofit financial institutions owned by their members.1 They typically offer in-person and online services, plus favorable interest rates and fees for savings and lending accounts. Since they’re not trying to generate a profit for shareholders, they can reinvest any earnings into lower-cost offerings and an improved member experience.
Deposits at a credit union are insured for up to $250,000 by a government-backed institution called the National Credit Union Administration, or NCUA.3
Unlike a bank, you have to become a member to use a credit union. Membership criteria could be based on:
- Where you live
- The company you work for
- Your connection to a school or other organization
Some credit unions are open to anyone who wants to join. You may also need to open and maintain a savings account with a small minimum balance to remain a member.
Bank vs. credit union: Key differences
If you’re shopping for a new bank or credit union, the following considerations could tip the scales. Remember that every bank and credit union is unique, so consider reviewing several options before making a decision.
| Credit union | Bank | |
| Profit status | Not-for-profit | For profit |
| Branch network | Typically limited to only a handful of branches | Ranges from many branches nationwide to online-only |
| ATM network | Generally only a few free ATMs unless they participate in a nationwide network (e.g. Co-Op network) | Generally at bank-owned ATMs only or participation in a nationwide network (e.g. MoneyPass network) |
| Interest rates | Typically better rates on savings and loans | Typically lower rates on savings and loans – however, online banks can offer competitive rates |
| Fees | Typically lower fees | Typically higher fees with traditional banks and lower fees with online banks |
| Deposit insurance | National Credit Union Administration (NCUA) insured | Federal Deposit Insurance Corporation (FDIC) insured |
| Ownership | Member owned | Shareholder or privately owned |
| Online services | More limited | More robust |
Fees
There are often stark differences in fee schedules between traditional banks and credit unions.
- Brick-and-mortar banks typically charge higher fees for a range of everyday banking activities.
- Credit unions and online banking services usually charge lower fees or no fees.
Avoiding fees lets you keep more of your hard-earned money in your account.
Branches and other access
Credit unions and small community banks may only have a handful of branches, while national banks could have thousands across the country. Having an accessible branch nearby is important if you prefer in-person banking.
The number of fee-free ATMs also varies, particularly if the bank or credit union is part of a large ATM network. Before choosing a bank or credit union, determine where you can withdraw your money and whether there are any withdrawal fees.
Interest rates
Credit unions and online banks typically offer better rates for deposit accounts, such as high-yield savings accounts or CDs. You may find APYs of 3.75% or higher.4
By contrast, the average bank savings account pays just 0.40%.5 Some of the nation’s biggest banks pay only 0.01% APY.
When you take out a loan, the reverse is typically true. Banks often charge higher interest rates, while credit unions typically charge lower interest rates.
That said, large banks sometimes offer special sign-up bonuses or temporary promotional rates, which can be a valuable perk.
Customer service
Some credit unions have a reputation for better customer service than banks, as they focus on the needs of their members.
Banks may not offer the same level of support if they aim to keep support costs as low as possible.
Product offerings
Credit unions typically offer fewer types of checking accounts and other financial products, though they often provide personal loans and auto loans.
Banks may offer a wider range of products, including loans, mortgages, investment accounts, and business services.
Mobile app
Banks often invest more money in technology, leading to a better mobile banking experience than you may find with a credit union.
Online and mobile banks primarily work with customers through mobile and online banking apps, making them a highlight of the experience. Credit unions, however, tend to offer more basic mobile apps with fewer features.
Bank or credit union: The choice is yours
Banks and credit unions can both meet a wide range of financial needs. As you make your decision, compare the fees, interest rates, account features, digital tools, and customer service options at each institution. Ultimately, you want to choose a bank or credit union that suits your needs and supports your financial goals.
Not sure which type of bank to choose? Learn more about the differences between online and traditional banking to see which one best suits your needs.
FAQs
Are credit unions better than banks?
Credit unions can be better than banks for some people, but not always. When choosing, look at the rates, fees, available accounts, and how they could meet your needs.
Is your money safer in a credit union or a bank?
As long as a financial institution is backed by federal deposit insurance, your money will generally be equally safe at banks and credit unions. The FDIC for banks and NCUA for credit unions offer comparable protections.
What’s the main difference between a credit union and a bank?
Credit unions are nonprofit organizations managed by a board of directors picked by members. Banks are for-profit organizations that aim to earn a return for investors or owners.