How to Choose Between a Credit Union or Bank

A credit union is a non-profit organization owned by the members of a particular community. Credit unions’ primary goal is to promote their members’ financial welfare and to return profits to them.

Like banks, credit unions charge interest and account fees, but they reinvest those profits and use them to help members. Examples include low-interest loans and other financial services, whereas banks give these profits to their shareholders.

While credit unions typically offer members the same products and services as a traditional bank, they tend to have lower fees and higher interest rates. Membership is required to join, and they’re often smaller in scale and have fewer in-person locations.

Credit unions also have eligibility requirements for opening accounts, and these requirements differ across credit unions.

Each credit union has its requirements, but in general, you can become a credit union member if you live in a specific region, you’re a member of a certain faith, employee of a particular business, school district, or other organizations or groups.

Now that you know what a credit union is and how they operate, let’s explore credit unions vs. banks.

Ownership

Banks: Banks are for-profit organizations owned and run by shareholders. The main goal of banks is to maximize profits for their shareholders.

Credit Unions: As member-owned non-profits, credit unions are technically financial cooperatives where members have voting rights.

Membership

Banks: Both individuals and companies can open an account with a bank.

Credit Unions: Some credit unions are very restrictive about who can join, while others are open to anyone willing to pay a membership fee.

Products and services

Banks: Banks offer an assortment of personal and commercial banking services. Some product offerings include loans, credit cards, and investment accounts like certificates of deposits (CDs) and individual retirement accounts (IRAs).

Credit Unions: Credit unions tend to offer fewer products than banks, especially when it comes to commercial banking products. Credit unions also typically offer fewer investment products, limited to checking and savings accounts and credit cards.

Rates and fees

Banks: Banks typically have higher interest rates on loans and lower interest rates on deposit and savings accounts. Traditional banks also tend to have more and higher fees on accounts and services than credit unions.

Credit Unions: Credit unions typically offer low- or no-fee banking accounts and services. Credit union-loan interest rates tend to be lower, yet their interest rates on savings products are typically higher than banks.

Deposit insurance

Banks: Banks are insured by the Federal Deposit Insurance Corporation (FDIC), which provides deposit insurance for up to $250,000 per depositor, per account.¹

Credit Unions: Credit unions are insured by the National Credit Union Administration (NCUA). Like FDIC insurance, NCUA insurance guarantees up to $250,000 per person, per account.²

While an online bank shares many of the same features as a traditional bank, some key differences make online banks stand out. To fully understand how credit unions and banks differ from one another, we have to look at financial institutions through two distinct lenses: traditional banks and online banks.

This table provides a general comparison of credit unions, online banks, and traditional banks.

Credit unions and banks each have their own set of pros and cons. Here’s what to consider when deciding on going with one over the other:

Credit unions: pros

• Offers more personal and local customer service. Credit unions tend to provide more personalized customer service.
• May be easier to obtain a loan than a large bank. Along the same lines, credit unions might offer less stringent lending criteria, such as a lower credit score, financial requirements, and higher debt-to-income ratio.

Credit unions: cons

• Less access to online services and tools. Some credit unions might be a bit slower to adopt banking technology.
• May have fewer branches and ATMs. While some credit unions are part of an extensive ATM network, they typically have fewer branches than larger banks because they’re regional.

Banks: pros

• May have many branches and ATM networks. Big banks may have a vast ATM network and many branches across the U.S.
• More robust websites and mobile apps. Banks (particularly online banks) tend to offer customers a more enhanced mobile app and computer dashboard experience.

Banks: cons

• Higher fees. As banks are for-profit financial institutions, they tend to have more fees, monthly account minimum requirements, and higher rates than credit unions.
• Less personalized service. Because banks have a more extensive customer base than credit unions, they might not be able to be as attentive to you as at your local credit union.

Before choosing one financial institution over the other, ask yourself the following questions:

• How many locations do they have? If you want to speak to a human in real life, focus your energy on institutions with local branches. If you just need to deposit and take out cash, many online banks offer customers access to a broad network of ATMs.

• Are their interest rates competitive? Compare interest rates between traditional banks, online banks, and credit unions. You will most likely find the best rates with credit unions and online banks.

• What fees do they charge, and how much are they? Research the fees a traditional bank, credit union, or online bank might charge you.

• What features and services matter the most to you? Make a note of what you want from a financial institution when it comes to services and simplicity. Consider things like mobile banking apps and automatic savings accounts when making your decision.

Ultimately, credit unions and online banks are solid options for your financial needs. Compare fees, rates, features, and available products. Then, ask yourself what you want in a provider before choosing a new financial institution.