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Credit Union vs. Bank: 8 Key Differences You Should Know About
Managing your finances involves a lot of big decisions: How should you invest your funds? How should you structure your budget? Where the heck should you even store your money?
Credit unions and banks are similar in that they offer the standard checking accounts, savings accounts, CDs (certificates of deposit) and money market accounts, and they typically offer mortgage, auto and small-business loans.
But while the financial products are similar, there are key differences in the way banks and credit unions are structured and the benefits they offer to members.
Banks are for-profit institutions, which means they invest the money you entrust them with and the interest they charge on loans. They use that money to grow the company and pass along dividends to the owners.
Credit unions offer a different ownership structure: They are nonprofit and member-owned, meaning dividends, though small, are passed along to every single member. Credit union members have voting power and can elect members to the board of directors to ensure they are represented in the credit union’s decisions. Credit unions also benefit from the Credit Union National Association, which lobbies at the state and federal level for credit unions.
Both credit unions and banks are typically insured through the U.S. government for up to $250,000 per deposit account — banks through the FDIC (Federal Deposit Insurance Corporation.) and credit unions through the NCUSIF (National Credit Union Share Insurance Fund), which is a part of the NCUA (National Credit Union Administration).
Each type of financial institution has its benefits and drawbacks. Here’s how credit unions and banks stack up across eight essential categories.
The biggest draw of credit unions as a financial institution is the higher interest rates they pay. Because credit unions are member-focused, they prioritize higher interest rates on your all your credit union accounts, including a checking account, savings account, CDs and money market account.
Banks, on the other hand — especially national banks — have high overhead and are profit-driven, so they pay lower interest rates on their bank accounts.
Winner: Credit unions
For the same reasons they can pay higher interest rates, credit unions can offer lower fees on their accounts than banks. In fact, many credit unions offer free checking accounts and free savings accounts, while many banks charge monthly maintenance fees to account holders.
Both banks and credit unions may also require minimum account balances, but banks are more likely to have higher overdraft fees. The higher fees at banks in combination with the lower interest rates can be a real prohibitor to financial growth.
Winner: Credit unions
Credit union members can also typically get lower loan rates on car loans, mortgage loans, personal loans and small-business loans than members of national banks.
Even better for those with low credit scores? Credit union officers are willing to sit down with you and work out a loan option that fits your unique credit picture. Banks, on the other hand, calculate risk based on credit scores alone and are more likely to reject applicants with low scores.
However, banks are more likely to offer credit cards, though these typically come with higher interest rates.
Winner: Credit unions
So far, it may sound like credit unions are a no-brainer. But they do have their shortcomings, a major one of which is rewards. While credit unions can offer better interest rates on accounts, lower or no fees, and better loans, banks offer better rewards programs — an easy way to make money just by opening an account or buying groceries.
Bank credit cards, for example, are more likely to offer rewards points and cash back, while bank accounts often come with sign-up bonuses. In general, credit unions lack such options.
Winner: Banks
Large banks have brick-and-mortar locations all across the U.S., while credit unions tend to be regional. If your family moves regularly, investing with a national bank can prevent you from having to open and close accounts at every move.
Because big banks have more locations, it is also more convenient to access your funds in person and via fee-free ATMs.
Winner: Banks
As community-based, not-for-profit institutions, credit unions are generally more focused on providing a personalized, friendly customer experience.
Credit union members reported higher satisfaction than bank members in the 2018 FIS Performance Against Customer Expectations (PACE) study. The most important aspect leading to satisfaction across all age groups was trust, a good indicator that the more personalized approach of credit unions may lead to superior customer trust and, as a result, satisfaction.
But that was then and this is now. The American Customer Satisfaction Index found that credit unions slightly lagged behind banks for 2019 and 2020. The survey results suggested a leveling off is coming and that it’s the customers’ preferences that is making them pick one over the over.
Small banks, it’s worth noting, generally receive the same customer satisfaction ratings as credit unions because of their more personal vibe and one-on-one interactions.
Draw, for now
Generally speaking, larger banks have had the resources to lead the industry in digital transformation over the last decade. That meant better websites and mobile apps, as well as advances in card technology (e.g., chips), mobile check deposit and mobile wallets. However, as time has progressed, credit unions have caught up, creating a more level playing field with site redesigns and app updates.
In fact, just this year, US News included credit unions in the number 2 and 3 spots on its top mobile banking apps overall.
Winner: Draw, for now
Banks are eager to have you open an account with them because you represent a source of revenue. Credit unions can be a little more challenging to join, because credit union membership is limited to those within the “field of membership.”
Typically, your ways into a credit union’s field of membership are through your employer, your place of worship, your physical location or your membership in a specific organization. Many credit unions will also let you join if a family member meets the criteria or if you make a small charitable donation.
Winner: Banks
If you’re keeping score, credit unions and banks are tied 4-4 across the eight factors we considered above.
So how do you know if you should go with a bank or a credit union?
When making the critical credit unions vs. banks decision, you might find yourself with lots of questions. You are not alone. Here are some of the most frequently asked questions people have when determining if a bank or credit union is a better fit for them:
As we’ve seen in our comparison, both banks and credit unions have their pros and cons. IIt really comes down to what’s more important to you.
Choose a bank if you want easier access to a physical location, better mobile app technology, an easier joining experience and better rewards for signing on.
But choose a credit union if higher interest rates, lower loan costs, better customer experience and lower fees are more important to you.
Note: Both are backed by some form of federal deposit insurance.
Credit unions have four distinct advantages over banks:
If these are the most important criteria to you when deciding between a credit union and a bank for your checking and savings accounts, go with a credit union.
But not everything is perfect at credit unions. They typically fall short of the experience at banks in four common areas
If these are the most important criteria to you when deciding between a credit union and a bank for your checking and savings accounts, go with a bank.
But remember: Online banks can often deliver the best of both worlds, and you can typically find both online credit unions and online banks. These tend to have higher interest rates (like physical credit unions) and superior mobile apps (like brick-and-mortar banks).
Timothy Moore is a managing editor for WDW Magazine, and a freelance writer and editor covering topics on personal finance, travel, careers, education, pet care and automotive. He has worked in the field since 2012 with publications like The Penny Hoarder, Debt.com, Ladders, Glassdoor, Aol and The News Wheel.
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