Credit union vs. bank: Which is best for you? (2024)

Thanks to the rise of fintechs and other non-banks offering financial products, consumers have more financial choices than ever before. But when looking for full-service options, many still flock to banks and credit unions.

Nearly 4,700 federally insured U.S. banks were in operation at the end of the 2023 first quarter, according to the Federal Deposit Insurance Corp. (FDIC). These banks had combined total assets of $23.7 trillion.

There were even more federally insured credit unions—4,712 at the end of Q1, according to the National Credit Union Administration (NCUA). Combined, those credit unions had more than 136 million members and $2.21 trillion in total assets.

The huge gap in assets is only one of the differences between credit unions and banks. Keep reading to learn about other differences, and whether a credit union or bank is best for you.

Overview of credit unions and traditional banks

Credit unions and traditional banks offer many of the same services and products, so in some respects their differences are minimal. You’ll usually find the usual lineup of checking and savings accounts at both types of institutions, as well as loans, credit cards, online banking and ATM services.

In most cases, you can open accounts online, over the phone or in person at both banks and credit unions. You’ll typically be required to provide the same kinds of documents to prove your identity, according to Chip Griffith, senior vice president of retail sales and operations at OneAZ Credit Union in Arizona.

“[You] will need to provide a government-issued photo ID such as a driver’s license or passport, Social Security number or tax identification number, and documentation of proof of address, such as a utility bill or lease agreement,” Griffith said.

Key differences between credit unions and traditional banks

Although banks and credit unions offer similar products and services, there are some major differences between the two. The biggest is that banks are for-profit institutions typically owned by shareholders, while credit unions are not-for-profit entities owned by their members. These different business structures also lead to differences in the missions of credit unions vs. banks.

Banks are obligated to deliver a profit to their shareholders, so customers don’t have much say in how the bank operates. In contrast, credit union members/customers do have a say in operations because of their ownership stakes.

You’ll typically find a greater emphasis on customer service at credit unions because any profits are put back into the institution itself rather than distributed to shareholders. In contrast, some traditional banks may be forced to cut corners on customer service to save money and boost profits.

Another difference is that banks tend to emphasize both business and consumer accounts, while many credit unions put greater focus on consumer deposit and loan services.

The following table breaks down some of the key differences between banks and credit unions.

Pros and cons of credit unions

Credit unions are a great fit for some customers, but not all of them.

Pros

• Member-owned: Because members share ownership in credit unions, they have a greater say in operations than bank customers. This often leads to superior customer service.
• Lower fees: Because credit unions are not-for-profit, they typically charge lower fees than banks.
• Higher savings rates: On average, you’ll find better interest rates at credit unions than banks, though some high-yield accounts at banks rank at the top of the industry.
• Lower loan rates: Similarly, credit unions typically charge lower interest rates on loans than banks.

Cons

• Membership rules: Some credit unions only allow membership if you meet requirements based on factors such as employment (e.g., Healthcare Employees Federal Credit Union) or military service (e.g., Navy Federal Credit Union).
• Limited number of branches: Unlike traditional banks that often have physical branches across multiple states, most credit union branches are confined to a limited area.
• Fewer products and services: You’ll typically find a smaller lineup of products and services at credit unions than banks.

Pros and cons of traditional banks

Because “banking” has become a catch-all phrase for all kinds of financial institutions, many consumers automatically think of banks rather than credit unions when deciding to open checking or savings accounts. This doesn’t necessarily mean banks are better, but they do have a built-in advantage when it comes to attracting customers.

Pros

• Wide geographic reach: One reason so many consumers open accounts with traditional banks is that you can find branches and ATMs almost anywhere. For example, Bank of America has roughly 3,900 retail financial centers and 15,000 ATMs nationwide.
• More deposit account options: Although some online banks offer only one account option, most large traditional banks give you a range of choices not found at credit unions. Chase alone offers 10 different checking and savings account options.
• Wider range of products and services: Some banks offer investment, insurance and other products and services you’re not likely to find at most credit unions.

Cons

• Customer service: Banks tend to get lower marks for customer service than credit unions, though it’s more of a problem at big banks than smaller ones.
• Lower savings rates: Because banks are in business to turn a profit, they usually offer lower interest rates on savings accounts than credit unions.
• Higher loan and fee rates: Again, the for-profit business model means many banks charge higher fees and loan rates than credit unions.

What to consider when choosing a credit union or bank

Your location might have a lot to say about whether you choose a credit union or bank. Sometimes it comes down to what is most convenient in terms of having access to branches and face-to-face customer service. Beyond that, you need to think about what you want most out of a financial institution, such as low fees, a wide variety of account options or high savings rates.

Brick-and-mortar banks vs. online banks

The main difference between online banks and brick-and-mortar banks is that online banks don’t have any physical branches, so they’re not a great fit if you value face-to-face service. However, because online banks have lower costs than traditional banks, you can usually find much better savings rates and lower fees at online banks vs. traditional banks.

Are banks safer than credit unions?

Credit Unions are insured through the National Credit Union Association (NCUA). This is a different federal agency than the agency that insures banks, but it provides the same level of safety as banks have. As long as a financial institution is federally insured, your funds are safe if there’s ever a bank run or failure.

Federally insured credit unions must include their insurance status in their advertising. However, if you’re unsure if a credit union is federally backed, you can check the NCUA’s complete directory of credit unions on its website.

List of most popular banks and credit unions

You have a lot of options when choosing a financial institution. Between traditional banks, credit unions, online banks and fintech companies, the choices seem endless. Here is a list of some of the most popular banks and credit unions:

Traditional banks

• Chase Bank: As one of the largest financial institutions in the U.S., Chase has thousands of branches and ATMs nationwide. Although the bank has low savings rates, it frequently offers welcome bonuses for new customers.

• Bank of America: Bank of America’s savings account has an $8 monthly maintenance fee, but you can avoid it by meeting specific requirements. If you qualify for Bank of America Preferred Rewards, you can receive credit card bonuses, an interest rate boost, loan discounts and more.

• Wells Fargo: Wells Fargo is another famous traditional bank. While its Way2Save rates are low, it offers higher-than-average APYs (according to FDIC data) on balances of $100,000 and above on its Platinum Savings.

Credit unions

• Alliant Credit Union: Alliant is an online-only credit union that offers excellent APYs on its deposit accounts. It’s easy to join, only requiring a $5 donation to the Alliant Credit Union Foundation.

• Consumers Credit Union: Consumers Credit Union offers 4.00% APY up to $15,000 on its Serious Interest Checking account. To earn the APY, you must maintain an average balance, make debit card purchases and receive monthly direct deposits.

• PenFed Credit Union: Members of PenFed rate the financial institution highly on Trustpilot, stating that it’s easy to apply and that the customer service representatives are helpful. The credit union offers an excellent 3.00% APY with Premium Online Savings.

Important differences between for-profit and nonprofit

One major difference between a bank and a credit union is that banks are for-profit, while credit unions are not-for-profit.

Banks make money from customers using their products and services and distribute the profits to their shareholders.

However, a credit union’s customers (or members) are its shareholders, so it uses its profits to improve its members’ banking experience. The credit union may return the profits to its members by offering lower interest rates on loans, higher APYs on deposit accounts and reduced bank fees.

Since the members are partial owners of the credit union, they often get to vote on policies and the board of directors.

FDIC vs. NCUA insurance

Banks and credit unions are both safe places to keep your money when federally insured. However, it’s important to note that the two types of financial institutions receive insurance through different agencies.

While the FDIC secures bank deposits, the NCUA safeguards deposits at credit unions. Both agencies offer similar insurance limits. Each depositor receives coverage up to $250,000 per federally insured financial institution and ownership category.

Insurance covers you in case of a bank or credit union failure. Banks fail for a variety of reasons; one reason can be if there is a “run on the bank,” where a large portion of the financial institution’s customers want to withdraw their money simultaneously. If the bank (or credit union) doesn’t have enough money to fulfill everyone’s requests, the insurance will kick in and ensure everyone receives their money.

Neither agency covers stocks, mutual funds, bonds, annuities, safety deposit boxes, treasury securities or life insurance policies.

Which is right for you?

The decision on whether to sign on with a bank or credit union depends on what you’re looking for from a financial institution. A credit union might be the better choice if you value high savings account rates and low fees, plus like the idea of being part of the ownership group. But if you need a bigger menu of banking products and services and want to be near a branch, then you may be better off at a traditional bank.

Additional reporting by Carley Clark