Credit unions and banks offer many of the same services, but there are key differences when comparing credit union vs. bank offerings that could influence your decision. Learning more about the differences between the two can help you understand the pros and cons and how they could meet your financial needs.
The decision about where to put your hard-earned money and who to trust when borrowing is significant. Follow along with this guide to credit unions vs. banks to learn more about the differences and which could be right for you.
What is a credit union?
A credit union is a nonprofit financial institution owned by its customers, called members. Credit unions typically focus on a specific group of people, such as a certain geographic area or employees of a specific company. Like a bank, deposits are insured by a government-backed institution, in this case, the National Credit Union Association (NCUA).¹
Credit unions often offer favorable interest rates and fees for savings and lending accounts. Because they’re not trying to generate a profit for shareholders, they can reinvest any earnings into lower-cost offerings and an improved member experience.
Credit unions typically offer in-person and online services. To join a credit union, you’ll need to meet its membership requirements and generally need to maintain a savings account with a minimum balance to remain a member.
Credit union vs. bank: key differences
Banks and credit unions have more in common than not in most cases. You’ll encounter additional differences when comparing traditional banks and online banks.
| 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 higher rates on savings and lower rates on loans | Typically higher lower rates on savings and higher rates on loans–however, online banks often feature high-yield savings options |
| 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 |
Credit union vs. bank: What to consider when choosing
If you’re shopping for a new bank or credit union, these considerations could tip the scales. Remember that every bank and credit union is unique, so you may want to look at several options before choosing a bank.
Fees
Looking at the fee schedules, you’ll likely find stark differences between traditional banks and credit unions. Brick-and-mortar banks generally charge high fees for a range of everyday banking activities, while credit unions and online banks charge much less, if at all.
Branches and other access
The average credit union nationwide has fewer than five branches, while banks can vary from small, local banks to nationwide companies with thousands of branches.² The number of fee-free ATMs also varies widely, particularly if the bank or credit union is part of a large ATM network.
Interest rates
Credit unions and online banks typically offer better rates for deposit accounts, such as high-yield savings accounts or CDs. On the other hand, you’ll earn an average of just 0.42% with an average bank savings account and as little as 0.01% at some of the biggest banks nationwide.³ When borrowing, you’ll find the reverse is typically true, with banks charging higher interest rates and credit unions charging lower interest rates.
Customer service
Customer experiences vary widely at different banks and credit unions. However, many credit unions have a reputation for better service, as they focus on the needs of their members. In comparison, banks may not offer the same level of support if they aim to keep support costs as low as possible.
Product offerings
Credit unions generally have a slimmer set of available types of accounts, though they’re known for strong personal loan and auto loan offerings. As they try to reach a broader set of customers, you may find more flexible options and business accounts at traditional banks.
Mobile app
Banks can often invest more in technology, leading to a better mobile banking experience. 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.
Credit union advantages
In some ways, credit unions offer advantages over traditional banks. These apply to both state-chartered and federal credit unions. Those include:
- Typically higher interest rate on savings: Compared to a traditional brick-and-mortar bank, you’ll often find higher interest rates on deposit accounts, such as high-yield savings accounts or certificates of deposit (CDs).
- Typically lower rates and fees for loans: Because they’re not trying to earn a profit, credit unions often charge less when borrowing money, including credit cards, mortgages, car loans, and personal loans.
- Community focus: Because credit unions focus on specific communities, they can do more to support those communities and their financial needs. For example, credit unions focused on military households may offer special terms during a deployment.
Credit union disadvantages
Credit unions have advantages, but they’re not perfect. Credit union members may encounter these common disadvantages:
- Membership requirements: The first hurdle is meeting the credit union’s membership requirements. Even those that operate nationwide and “anyone can join” sometimes require a donation to a related nonprofit.
- Small branch and ATM networks: Unlike banks with nationwide presences and online banks working with large networks for fee-free ATM transactions, credit unions typically operate just a few branches where members are located and smaller networks of no-cost ATMs.
- Less competitive offerings: Because they’re not competing to earn a profit and have fewer resources than larger banks, credit unions may have lower-quality online and mobile platforms and may offer fewer deposit and loan products.
Bank advantages
Banks are better than credit unions in several important ways. Those advantages include:
- Broader customer needs served: Banks don’t have members, so there are no membership requirements, though some smaller banks only work with local customers. Many banks work with customers nationwide and aim to meet a broad set of needs.
- Larger branch and ATM networks: Large banks may operate thousands of branches and ATMs. With Chime, you can use more than 50,000 fee-free ATMs.*
- Higher-tech experience: Banks often adopt new technologies faster than credit unions. For example, features like mobile check deposit were introduced into banking apps before credit union apps. You’ll often find a more polished, feature-filled, and user-friendly experience with bank apps and websites.
Bank disadvantages
Banks may be the best choice for most of your financial needs. However, savvy savers should also be aware of potential drawbacks.
- Lower interest rates for deposits: Traditional banks generally offer lower interest rates than credit unions and online banks for your deposits, keeping you from earning more over time.
- Higher rates when borrowing: When borrowing funds, banks usually charge higher interest rates.
- More and higher fees: Traditional banks are notorious for charging high fees for everything from overdrawing your account to dipping below a minimum balance. Credit unions and online banks generally charge lower fees.
Bank or credit union: The choice is yours
Ultimately, credit unions and online banks are excellent options for a wide variety of financial needs. Compare fees, rates, features, and available products. Then, ask yourself what you want in a provider so you can make an informed choice when choosing a new financial institution.
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.