Pros And Cons Of Credit Unions (2024)

If you’re looking for a change from traditional banking, a credit union could be worth considering. Owned by account holders and not-for-profit, credit unions differ from banks and other institutions in many ways—and might prove to be a more attractive option to certain people.

Deciding whether a credit union is right for you depends on which products and services you need and how you bank—but getting to know the pros and cons of credit unions is a good place to start.

Credit Union Pros and Cons

Unlike banks, which are typically for-profit entities controlled by shareholders, credit unions are nonprofit financial institutions owned by their members. This lies at the heart of many of the advantages and disadvantages credit unions have compared to traditional banks, which include the following.

Pros

• Low fees and interest rates. Credit unions often repay profits to members in the form of low banking fees and borrowing rates. Many offer free accounts and fee waivers, and credit unions are known for charging lower interest rates on loans than a lot of banks.
• Higher yields on deposit accounts. In addition to using profits to lower fees, credit unions typically offer more competitive rates on deposit accounts than many banks.
• Member benefits. When you join a credit union, you become a share owner and may be able to weigh in on leadership elections, initiatives and policies that affect you. Many credit unions also offer member benefits such as discounts with partners.
• Deposit insurance coverage. Credit union deposit accounts are covered by National Credit Union Association (NCUA) insurance, similar to Federal Deposit Insurance Corporation (FDIC) coverage for banks, up to $250,000 per account, per depositor.
• Community. Credit unions often serve a certain geographic area and have a strong local, regional or statewide presence. This is helpful for in-person banking and personalized service, and many credit unions give back to the communities they serve.
• Shared branches. Many credit unions make their branches available to members of other credit unions, which may be referred to as a co-op shared branch network. This practice allows for more widespread, even national, branch banking access.

Cons

• Membership requirements. To open an account with a credit union, you must become a member. Many credit unions determine membership eligibility based on where you live, work or worship. Some won’t let you join if you don’t meet one of these requirements.
• Membership fees. Some credit unions cost money to join or charge annual membership dues.
• Fewer physical branches. Credit unions may be local or regional, with limited branches outside of your area. If you travel or move, this can make getting in-person help difficult.
• May have fewer services. While many larger credit unions offer all of the same services banks do, some provide a limited range of products and services.

How To Choose a Credit Union

Choosing a credit union can take time, especially due to the more personal nature of these institutions compared to traditional banks. The best credit unions are easy to join and provide a range of benefits to their members, but the best credit union for you might be different than the best credit union for someone else. Compare several credit unions by doing the following.

• Look into membership requirements. Many credit unions require you to be associated with a certain company, organization or region—or related to someone who is—in order to join. Others let anyone join by making a donation or becoming a member of a club or charity. If you qualify, you’ll usually open a savings account to establish membership.
• Review available products and services. Banking is more than just opening a checking account. Look into savings accounts, loans and borrowing options, credit cards, investment accounts and advising services you may need now or in the future.
• Check out digital tools. Take a peek at the online banking platforms and mobile apps a credit union provides, as these will determine how easy it is for you to access your money and account information when you’re not at a branch.
• Compare rates. Interest rates vary significantly from one credit union to another. Find out what several credit unions offer on loans and deposit accounts you’re interested in.
• Research locations. For in-person banking and ATM access, find out where a credit union has physical branches. A credit union’s footprint can make or break your experience.
• Verify NCUA coverage. Before joining a credit union, confirm that it’s a member of the NCUA. This guarantees your deposited funds would be insured should a credit union go out of business. You can find all members using the NCUA’s Credit Union Locator Tool.

Are Credit Unions Better Than Banks?

There are many differences between banks and credit unions, but which one is better?

Credit unions can have several potential advantages over traditional banks, including:

• Lower or fewer banking fees
• Higher deposit interest rates
• Better borrowing rates
• More personalization
• Membership benefits

But these advantages aren’t guaranteed, and some credit unions lack enough benefits to be worth joining. And because you must become a credit union member to open an account, it’s important to find the best one for your banking needs before you apply or pay for membership.

Overall, member-owned credit unions tend to be best for personalized banking. But while they may be good for some, others will be better served by the variety of offerings at many national banks, the flexibility of online banks and the enhanced digital tools of neobanks and fintechs.