Credit Unions vs. Banks: What is the Difference?

Banking
Updated: 29th Sep 2021
Written by Kim Pinnelli
Share this article
APR vs APY
APR vs. APY: What Are the Differences?
What Is APY
What Is APY? How Annual Percentage Yield Works
Banking
February 6, 2021
Written by Kim Pinnelli

Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.

Credit unions and banks both offer a safe place to deposit your money. They even have similar loan products, but the similarities end there.

Understanding the difference, and who can use each is important as you decide where to put your funds.

How Are Credit Unions and Banks Different?

As I said above, banks and credit unions have many similarities, but the differences are more prevalent. Understanding how they differ can help you choose the right structure for your needs.

#1. For-Profit vs Not-For-Profit

Banks are for-profit – they operate with the shareholders in mind. Credit unions are not-for-profit and operate with the members in mind. Anyone who belongs to the credit union (like yourself) is a member.

The difference appears in the fees and interest rates charged, and interest rates paid on deposit products.

#2. Who Can Join

Anyone can join a bank. As long as you meet the minimum deposit requirements, and understand the fees, you’re free to use any bank. If you apply for a loan, you’ll need to be approved, but otherwise, you can use any bank.

To join a credit union, you must meet the requirements. Usually, you must work for the same employer, live in a specific geographic area, or belong to a certain affiliation to join a credit union.

#3. FDIC vs NCUA

Both credit unions and banks are regulated and insured – banks have FDIC, Federal Deposit Insurance Corporation and credit unions have the National Credit Union Administration (NCUA) insurance.

#4. Fees

Banks charge fees, often high fees because they are for-profit. They charge the fees to stay profitable and keep the shareholders happy.

Credit unions charge lower fees (sometimes no fees) because they are not-for-profit. They put any money they earn back into the members, which means lower fees.

#5. Interest Rates

Banks charge higher interest rates on loans and pay lower rates on deposit accounts because of their business model.

Credit unions charge lower interest rates on loans and pay higher rates on deposit accounts to pay back their members.

#6. Customer Service

You can usually get decent customer service from a bank, but often less personal service than a credit union because of the sheer size. If you bank at a local (small) bank, you may get personalized service like a credit union, though.

#7. Community Involvement

Credit unions represent their members, so they often get involved in the community. They often help with fundraisers and offer scholarships as a couple of examples. Banks may be involved in national issues, but generally not at the local level.

#8. Online Services and Technology

Banks have greater advantages with technology. Most banks have mobile apps and other online capabilities that credit unions don’t have. Credit unions require most transactions in person at the local branch.

>> More: Best Online Banks

#9. Financial Products Offered

Banks may offer more financial products than credit unions because they are bigger and have more money. Credit unions offer the basics – checking, savings, CDs, money markets, personal loans, auto loans, mortgages, and credit cards.

How are Banks and Credit Unions Similar?

Credit unions and banks are similar in the products they offer and their overall mission. If you need a place to deposit funds safely, you will do fine with a bank or credit union.

They both offer deposit products and consumer finance products to help you reach your goals.

>>More: Best Bank Accounts

Credit Unions vs Banks: Advantages and Disadvantages

Credit Unions

Pros

  • Typically offers lower interest rates and fees
  • May pay higher APYs on savings products
  • Offers more personalized service
  • Gives back to the community
  • Deposit accounts insured up to $250,000

Cons

  • May have fewer financial products
  • May not have advanced technology (apps or online options)
  • Usually has fewer branches (sometimes only one)

Banks

Pros

  • May be more convenient with more branches
  • May have more financial products available
  • Usually offers more technological advances including mobile deposit and online banking
  • Deposit accounts insured up to $250,000

Cons

  • Loan interest rates and fees are often higher
  • Savings account APYs are often lower
  • May offer less personalized service

Are Credit Unions Safer than Banks?

Credit unions and banks are equally safe. One isn’t safer than the other. As long as the bank or credit union you use is FDIC or NCUA insured, your money is safe.

Do Banks or Credit Unions Offer Lower Fees?

Credit unions generally have lower fees, but always compare. If you’re a loyal client of a particular bank, you may be eligible for lower or more personalized fees, so weigh your options.

Who Should Choose a Credit Union?

If you’re eligible for a credit union, check it out. What’s the membership fee? What products do they offer? If they offer what you need, use it. You’ll enjoy lower fees and higher APYs on deposit accounts, making your money work harder.

Who Should Choose a Bank?

If you aren’t eligible for a credit union, you need a bank. Even if you use a credit union, you may need a bank for other services, including specialized savings products or certain loans that credit unions may not offer.

Bottom Line: Credit Unions vs Banks

Banks and credit unions offer great options to keep your money safe and secure. If you have access to a credit union, use it. If nothing else, you’ll earn higher APYs on your savings products and save money when you need a loan.

Local banks may offer more flexibility and convenience, though. Decide if your credit union is convenient and if it can replace your bank or if you should use a combination of the two.

More Banking and Credit Union Resources

Kim Pinnelli
Kim Pinnelli
Kim is a personal finance expert with a Bachelor’s degree in Finance from the University of Illinois at Chicago. She has been freelance writing for 13 years for a number of large publications. Kim thoroughly enjoys helping people take charge of their personal finances.