What’s The Difference Between A Bank And A Credit Union? (2024)

When you’re looking for a new checking or savings account, a loan or a line of credit, you have more choices than just the myriad local and national banks that compete for your business. An often-overlooked option for these sorts of products is the credit union, which offers many of the same types of financial products and services you can get at a bank.

But what exactly is a credit union, and how is it different from a traditional bank? Although banks and credit unions have similar offerings, there are some important distinctions between these two types of institutions.

Understanding the difference between banks and credit unions can help you make the best decisions for your household.

For-Profit vs. Nonprofit

What makes banks and credit unions different from each other is their profit status. Banks are for-profit, meaning they are either privately owned or publicly traded, while credit unions are nonprofit institutions. This for-profit vs. not-for-profit divide is the reason for the difference between the products and services each type of institution offers.

A credit union is owned by its members, since the institution is actually set up as a cooperative. Credit unions typically open membership to individuals who share a common bond, such as the industry they are employed in, the community they live in, their faith or their membership in another organization.

In addition, as a nonprofit, credit unions are also generally exempt from federal taxes, and some credit unions even receive subsidies from the organizations that they are affiliated with. This means credit unions do not have to worry about making profits for shareholders.

It is the credit union’s mission to provide its members with the best terms it can afford for their financial products. This means members generally get lower rates on loans, pay fewer (and lower) fees and earn higher APYs on savings products than bank customers do.

Banks are focused on making a profit, rather than specifically centering on the needs of the account holders. This is one of the reasons you’ll often find that banks charge more fees, and at a higher rate, than credit unions do. Interest rates on lending also tend to be higher at banks, while their APYs on savings products tend to be lower.

Advantages of Banks Over Credit Unions

• More financial products and services: Banks offer a variety of products and services, while credit unions tend to stick with a few core offerings, such as deposit accounts, credit cards and loans. Many banks provide investment accounts and financial advisory services in addition to standard banking products.
• Physical branches and ATMs: One of the main draws of banks is their physical locations. Many people like having access to bank tellers and ATMs—preferably right in their neighborhood. Though a lot of banking occurs online nowadays, sometimes there’s a need to visit a branch or take out cash, making banks preferable to credit unions for certain consumers.
• Better online and mobile banking options: Banks are generally more advanced when it comes to websites and mobile apps, making managing your accounts a breeze. Though many credit unions offer online banking, the quality and availability of mobile apps are hit or miss. If you prefer banking from your laptop or phone, banks will likely provide a better experience than credit unions.

Advantages of Credit Unions Over Banks

• Fewer fees and requirements: Credit unions tend to have lower costs and more flexibility than banks. For example, credit unions are more likely than banks to offer checking accounts without monthly maintenance fees or minimum balance requirements.
• Better rates on savings accounts and loans: Credit unions offer higher interest rates on savings accounts and lower rates on loans—exactly what consumers want. Higher interest rates on bank accounts help your money grow faster, while lower rates on loans make it cheaper to borrow money.
• Attentive customer service: Since credit unions are smaller and committed to serving their members, not investors, they tend to provide better customer service. Credit union representatives will likely give you personalized attention and help you identify the best services for your needs—something often lacking at large banks.

FDIC vs. NCUA

A common concern about credit unions is that they’re not insured by the Federal Deposit Insurance Corporation, or FDIC. However, even though credit unions are not subject to FDIC insurance, Congress created the National Credit Union Administration (NCUA) in 1970 to insure deposits in credit union accounts.

The FDIC is a government agency that provides deposit insurance for up to $250,000 per depositor, per insured bank, for each account ownership category. If your bank were to fail or run out of money, the FDIC will pay account holders the money they are due from the accounts in the failed bank. FDIC insurance has been around since 1933 to prevent the kind of bank runs and panic that occurred when banks failed in the 1920s and early 1930s.

Before 1970 and the creation of the NCUA, credit union members had no such insurance should their financial institution fold suddenly. Like FDIC insurance, NCUA insurance guarantees up to $250,000 per share owner, per insured credit union, for each account ownership category, should the credit union close or go into conservatorship.

All federal credit unions and most state credit unions are insured by the NCUA. At the NCUA website, you can see if your credit union is covered, and NCUA-insured credit unions always prominently display their insurance status on signage in their branches.

Pros and Cons

Which financial institution will be a better fit for you and your family—a bank or a credit union?

Banks

Pros

• Accounts FDIC-insured up to $250,000
• Convenience
• Financial technology
• Likely more branches and ATMs / More products offered

Cons

• More and higher fees
• May offer lower APYs on savings vehicles
• Higher interest rates on loans

Credit Unions

Pros

• May offer lower interest rates on loans
• Higher APYs on savings vehicles
• Fewer and lower fees
• Excellent customer service and financial education
• Accounts NCUA-insured up to $250,000

Cons

• May have fewer branches and ATMs
• Less access to financial technology
• Fewer products offered
• Eligibility requirements to become a member

Making the Right Choice for Your Money

While banks and credit unions offer a number of the same products and services, they are not the same. For consumers who need nationwide convenience, easy access to mobile banking and a wide array of different products, a bank may be the better bet. But consumers who need lower rates and fees, higher APYs, a personal touch when it comes to customer service and access to excellent, free financial education may do better with a credit union.

Bottom Line

Choosing a bank or credit union comes down to what you value. Consumers who value technology and access to in-person services may prefer banks, while those who value better rates and customer service may be better suited for credit unions. You will need to consider all the factors to choose the option that aligns with your banking needs.

Frequently Asked Questions (FAQs)