Credit Union vs Bank: What's the Difference? | The Motley Fool (2024)

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Credit Union vs Bank: What's the Difference? | The Motley Fool (1)

Credit Union vs Bank: What's the Difference? | The Motley Fool (2)

By:Kailey Hagen andCole Tretheway

Our Banking Experts

Credit Union vs Bank: What's the Difference? | The Motley Fool (3)

Credit Union vs Bank: What's the Difference? | The Motley Fool (4)Fact CheckedEric McWhinnie

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.APY = Annual Percentage Yield. APYs are subject to change at any time without notice.

When shopping around "best of" lists, you might find credit union accounts next to bank accounts. What gives? Bottom line, they offer similar services. You can meet your banking needs at a bank or a credit union. But there are key differences.

If you can bank with a credit union, check out its perks first. Credit unions offer personable and community-first services, plus market-beating rates. Once you've done that, compare credit union features to those banks offer. You may be pleasantly surprised -- banks, especially online banks, have become competitive with credit unions in many ways.

Read on to compare the pros and cons of a credit union vs. bank with confidence.

What is a credit union?

A credit union is similar to a bank in many ways, but credit unions are nonprofit institutions. Because they're nonprofit, credit unions can usually offer market-beating rates on savings and checking accounts, mortgages, loans, and sometimes even credit cards.

Credit unions are usually designed to serve the financial needs of communities:

  • Residents of specific regions
  • Members of certain faiths
  • Employees of certain organizations
  • Other groups

What is a bank?

A bank is an institution where you can deposit savings and take out loans. Banks are often seen as a convenient and secure way to store money, and some account types also earn interest. Most banks have both online and in-person services.

Banks are for-profit organizations. At a bank, you can open checking and savings accounts, loans, credit cards, or other products. Almost anyone can join a bank.

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How do credit unions and banks differ?

The key difference between a credit union vs. bank is that credit unions are nonprofits while banks are for-profit institutions. As a result, credit unions can offer lower loan rates and higher savings rates. However, credit unions tend to be smaller than national banks.

Also, credit unions usually have membership requirements, but these aren't hard to meet. Banks, on the other hand, serve just about anyone. Banks are often less flexible because they must serve diverse customer bases.

Pros and cons: Credit union vs. banks

Credit unions compete with banks for customers, but there is more than meets the eye. Online banks now offer rates competitive with credit unions, and they offer different perks than legacy brick-and-mortar institutions. Here's an overview of how credit unions, brick-and-mortar banks, and online banks compare.

Credit UnionsBrick-and-Mortar BanksOnline Banks
Primary GoalService membersMake profitMake profit
Interest ratesUsually betterTypically lowerOften the best
FeesLower feesHigher feesLowest fees
ServicesBasicWide rangeUsually limited
Customer ServicePersonalizedVariesMainly online/phone
Branch AvailabilityLimitedExtensiveNone
ATM NetworkLimited but often in networksExtensiveUsually reimburse fees
Tech FeaturesBasicGoodExcellent
Regulation & InsuranceNCUA, similar to FDICFDICFDIC

Credit union vs. banks: How do the financial services compare?

Personal loans

When shopping for a personal loan, there are two key factors that distinguish a credit union vs. bank.

First is the rates. As discussed above, you may be able to score a better rate with a credit union than with a traditional bank. This could save you hundreds or even thousands of dollars over the lifetime of your loan.

Credit unions may also have more lenient eligibility requirements. That means you could secure a personal loan from a credit union even when a bank might turn you away. They're worth considering if you have fair or poor credit.

Many online banks and lending institutions offer personal loan rates competitive with credit unions. But if eligible, you should check the rates offered by your credit union. Review websites might fail to fully consider the perks of credit unions, which tend to be exclusive.

Credit cards

You're more likely to find credit cards with banks than you are with credit unions, but some credit unions do offer them. Credit union credit cards may charge lower interest rates, but otherwise, they're the same as bank credit cards. Requirements for approval are often less stringent, though you must be a member of the credit union.

Mortgages

Choosing a credit union vs. bank for a mortgage involves many of the same considerations as any other type of loan. You may be able to score a better rate and have an easier time getting approved for a mortgage with a credit union than you can with a bank. But you have to be willing to accept more dated online services, which can make managing your account more of a hassle.

Which is better to have in a recession?

History shows that when it comes to a credit union vs. bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money. Both credit unions and banks have deposit insurance and are generally safe places for your money.

What is right for you: a bank or credit union?

Shop around. Best advice, compare credit unions like you would banks. They're not the same, but you ultimately use them for the same purpose: to meet your banking needs.

When a credit union is a better choice than a bank:

Credit unions typically offer better rates to members than brick-and-mortar banks. They also tailor products to their communities, and customer service is sometimes better. Credit unions may provide better or more loan options to members with fair or poor credit.

When a bank is a better choice than a credit union:

Banks typically offer convenient online access and advanced technology compared to credit unions. Online banks may provide members with rates competitive with credit unions. Brick-and-mortar banks offer the most branches, ATMs, and nonessential banking services.

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Still have questions?

Here are some other questions we've answered:

  • What is FDIC insurance?
  • Checking account vs. savings account: Which should you pick?
  • Online vs. Brick and Mortar Bank: Which Is Better?

FAQs

  • Brick-and-mortar banks offer worse rates than credit unions, but the big ones have many physical branches you can walk into. They make in-person banking doable and have some of the biggest ATM networks out there. They may offer nonessential banking products like credit cards -- you may be able to manage all your monetary needs at one traditional bank.

  • Generally speaking, online banks offer the best rates on deposit accounts -- they're cheaper to operate, and banks pass savings onto customers. If you're technologically savvy and top-tier interest rates are your priority, online banks are your bread and butter.

Our Banking Experts

Credit Union vs Bank: What's the Difference? | The Motley Fool (83)

By:Kailey Hagen

Writer

Kailey Hagen has been writing about small businesses and finance for almost 10 years, with her work appearing on USA Today, CNN Money, Fox Business, and MSN Money. She specializes in personal and business bank accounts and software for small to medium-size businesses. She lives on what's almost a farm in northern Wisconsin with her husband and three dogs.

Credit Union vs Bank: What's the Difference? | The Motley Fool (84)

By:Cole Tretheway

Cole Tretheway is a full-time personal finance writer whose articles have been featured on The Ascent and The Motley Fool. He has a degree in English with a Certificate in Professional and Technical Communication from California Polytechnic University, SLO.

Credit Union vs Bank: What's the Difference? | The Motley Fool (85)

Credit Union vs Bank: What's the Difference? | The Motley Fool (86)Fact CheckedEric McWhinnie

Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.

We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.

Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Synchrony Financial is an advertising partner of The Ascent, a Motley Fool company. Cole Tretheway has no position in any of the stocks mentioned. Kailey Hagen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Charles Schwab, and Target. The Motley Fool recommends Discover Financial Services and recommends the following options: short March 2024 $65 puts on Charles Schwab. The Motley Fool has a disclosure policy.

Credit Union vs Bank: What's the Difference? | The Motley Fool (2024)

FAQs

Credit Union vs Bank: What's the Difference? | The Motley Fool? ›

As a result, credit unions can offer lower loan rates and higher savings rates. However, credit unions tend to be smaller than national banks. Also, credit unions usually have membership requirements, but these aren't hard to meet. Banks, on the other hand, serve just about anyone.

Is it better to invest with a bank or credit union? ›

If you want higher deposit rates and don't need access to branches across the country, for example, you might prefer a credit union. If you want access to in-person services and don't mind lower interest rates, a bank might be more suitable.

What is an accurate difference between a bank and a credit union? ›

The main difference between the two is that banks are typically for-profit institutions while credit unions are not-for-profit and distribute their profits among their members.

Is it better to borrow from a bank or credit union? ›

Credit unions can be ideal for a low-interest loan, lower mortgage closing costs, or reduced fees, but you'll need to qualify for membership. Larger banks may offer you more choices regarding products, apps, and international or commercial products and services, and anyone can join.

Which is better FDIC or NCUA? ›

One of the only differences between NCUA and FDIC coverage is that the FDIC will also insure cashier's checks and money orders. Otherwise, banks and credit unions are equally protected, and your deposit accounts are safe with either option.

Why do banks not like credit unions? ›

For decades, bankers have objected to the tax breaks and sponsor subsidies enjoyed by credit unions and not available to banks. Because such challenges haven't slowed down the growth of credit unions, banks continue to look for other reasons to allege unfair competition.

What is the downside of banking with a credit union? ›

Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.

Are credit unions safer than banks during a recession? ›

bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money.

What are three big differences between banks and credit unions? ›

But compared to banks, credit unions tend to be smaller, operate regionally and are not-for-profit. In many instances, they offer lower rates on loans, charge fewer fees and offer better interest rates for deposit accounts than traditional banks.

Is your money safe in a bank or credit union how so? ›

Just like banks, credit unions are federally insured; however, credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, the National Credit Union Administration (NCUA) is the federal insurer of credit unions, making them just as safe as traditional banks.

Why would someone choose a bank over a credit union? ›

People choose banks primarily because of the convenience of multiple branches across the country, along with better technology. On the flip side, people choose credit unions primarily because of discounted loan rates, higher interest rates and better customer service.

What is the biggest advantage to a credit union? ›

Here are 7 benefits of credit unions that might make you think twice about getting an account with one of the big guys.
  1. Lower Fees. Credit unions tend to offer lower fees than banks. ...
  2. Better Savings. ...
  3. Lower Loan Rates. ...
  4. Local Experts. ...
  5. Commitment to Members. ...
  6. Elected Board of Directors. ...
  7. Investments in Your Community.

What's the best credit union to go through? ›

Here are some of the country's top credit unions:
  • Alliant Credit Union. Alliant offers an above-average interest rate for savings. ...
  • Consumers Credit Union. ...
  • Navy Federal Credit Union. ...
  • Connexus Credit Union. ...
  • First Tech Federal Credit Union.

Are credit unions at risk of collapse? ›

Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.

What happens if a credit union fails? ›

If a credit union is placed into liquidation, the NCUA's Asset Management and Assistance Center (AMAC) will oversee the liquidation and set up an asset management estate (AME) to manage assets, settle members' insurance claims, and attempt to recover value from the closed credit union's assets.

Are joint accounts NCUA insured to $500,000? ›

The NCUSIF provides each joint account holder with $250,000 coverage for their aggregate interests at each federally insured credit union. For example, a two person joint account with no beneficiaries has $500,000 in coverage.

Is money safer in a bank or credit union? ›

However, because credit unions serve mostly individuals and small businesses (rather than large investors) and are known to take fewer risks, credit unions are generally viewed as safer than banks in the event of a collapse. Regardless, both types of financial institutions are equally protected.

Are credit unions safe to invest in? ›

Just like banks, credit unions are federally insured; however, credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, the National Credit Union Administration (NCUA) is the federal insurer of credit unions, making them just as safe as traditional banks.

Do credit unions invest your money? ›

When you choose a credit union, your money is invested back into the community through loans and other services. Find a credit union near you and learn more about how credit unions invest in their communities.

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