Credit Unions and Banks: What’s the Difference and Which One Is Right For You? (2024)

Credit Unions and Banks: What’s the Difference and Which One Is Right For You? (1)

Many of us know what a bank is and how it operates. But you’ve probably also heard about people conducting financial transactions through a credit union.

Banks and credit unions are very similar: Both institutions offer checking, savings, money market accounts, personal loans, certificates of deposit, credit cards and investments, and both are usually federally insured.

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.

Credit unions can appeal to a wide range of members, from people looking for more personalized service to those hoping for a better rate on a mortgage or a car loan.

Banks and credit unions both have benefits and drawbacks. Read on to learn more about their differences. For more on banking, check out the best high-yield savings accounts right now and current mortgage rates.

Read more: How to find the best credit union

What is a credit union?

A credit union is a financial institution that operates like a bank but is owned and governed by its members. Because they’re not-for-profit, credit unions are tax-exempt.

Traditionally, credit unions aren’t open to everyone: In some cases, to qualify you or a family member may need to work in a specific industry, belong to a specific association or house of worship, or live in a particular area.

But some credit unions have relaxed their membership requirements in recent years, allowing more members to join. For example, to qualify for membership at some credit unions, you may only be required to make a small donation to a cause or foundation the credit union supports.

The number of credit unions in the US has dropped from more than 6,700 in 2013 to fewer than 4,900 at the end of 2022. But the number of Americans who have joined a credit union has grown steadily, according to Statista, reaching more than 132 million in the first half of 2022.

The largest US credit union is Navy Federal Credit Union, which has more than $166.1 billion in assets, as of early this year.

What’s the difference between a bank and a credit union?

At first glance, the most notable difference is size: Banks are larger, with more branches and ATMs and more robust online services.

Because they’re smaller, a credit union may also offer fewer financial products.

Deposits of up to $250,000 per account, per institution, are protected in both banks and credit unions. Banks are insured by the Federal Deposit Insurance Corporation, or FDIC, while the money held in credit unions is protected by the National Credit Union Administration, or NCUA.

On a deeper level, the two have different priorities: Banks are profit-driven, so you’ll usually find more transaction and late fees, as well as higher rates on loans and lower yields on investments. Online banks have changed that equation a little, becoming more competitive with credit unions on rates and fees.

Credit unions don’t need to worry about stockholders and can focus on providing members with the best terms available. Profits are returned to members through fewer fees, lower interest rates and higher returns.

Members of credit unions are co-owners, so they get to vote on who’s appointed to the board and other important issues.And because they’re focused on the financial wellness of their members, many credit unions offer money-management workshops and counseling.

Read more: The Best Online Banks

How do I find a credit union?

According to the Credit Union National Association, about 99% of consumers are eligible to join at least one credit union.

You can search the NCUA website to find credit unions in your area and also look up a credit union’s requirements, size and history.

You can also check with your employer, local civic or religious group, or other organizations to see if any of them are associated with a credit union.

The bottom line

Banks and credit unions provide safe, accessible ways to manage and grow your money. However, each institution has its pros and cons, such as fees and membership requirements, which should be considered before you make a decision. When researching banks and credit unions, be sure to compare fees, interest rates and types of services offered to see which institution is the best fit for your financial needs.

Editors’ note: An earlier version of this article was assisted by an AI engine. This version has been substantially updated by a staff writer.

Credit Unions and Banks: What’s the Difference and Which One Is Right For You? (2024)

FAQs

Credit Unions and Banks: What’s the Difference and Which One Is Right For You? ›

Credit unions tend to have lower interest rates for loans and lower fees. Banks often have more branches and ATMs nationwide. Many credit unions have shared branches and surcharge-free ATMs provided through the CO-OP Shared Branch network. Banks have historically had better technology online and for mobile apps.

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.

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.

Which is your best choice when choosing a savings account at a bank or credit union because you ll earn the most interest? ›

You'll find interest rates on savings accounts are typically higher at a credit union than at a bank. Savings accounts are insured by the NCUA. Credit unions are regulated by the National Credit Union Administration (NCUA), where they pay insured deposits to the member owning the account up to $250,000.

What is safer a bank or credit union? ›

Generally speaking, credit unions are safer than banks in a collapse. This is because credit unions use fewer risks, serving individuals and small businesses rather than large investors, like a bank.

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 a weakness of a credit union? ›

With a credit union, you might have to do some extensive research to compare accounts and find out what services they offer. Credit unions only serve certain groups of people and if the ones you can join don't have mobile banking or their apps aren't up to par, that could potentially be a major disadvantage.

How to choose a bank or credit union? ›

SHARE:
  1. Identify the right account.
  2. Look for banks that charge low or no fees.
  3. Consider the convenience of a local branch.
  4. Take a look at credit unions.
  5. Find a bank that supports your lifestyle.
  6. Examine digital features.
  7. Understand the terms and conditions.
  8. Read reviews for banks you're considering.
Jun 7, 2023

Can a credit union fail like a bank? ›

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.

How safe is my money in a credit union? ›

Which is Safer, a Bank or a Credit Union? As long as you are banking at a federally insured institution, whether it is a credit union insured by the NCUA or a bank by the FDIC, your money is equally safe. Credit unions are owned by the members—your savings account at a credit union is a share of ownership.

Are credit unions at risk of collapse? ›

However, two regulatory experts say credit unions are actually safer places for folks to put their money than traditional banks, pointing to how the institutions – which largely cater to individuals rather than companies – are much less vulnerable to bank runs or liquidity issues.

What happens to credit unions when banks collapse? ›

If your money is at a credit union, it is similarly protected by the NCUA, with the same limits. This can provide peace of mind, no matter what type of institution you prefer for your money.

Should I keep my money in 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.

Can the government take your money from a credit union? ›

Through right of offset, the government allows banks and credit unions to access the savings of their account holders under certain circumstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.

Is it smart to open a savings account with a credit union? ›

One of the most significant advantages of choosing a credit union for your savings account is the lower fees and higher interest rates they offer. Unlike traditional banks that focus on maximizing profits, credit unions prioritize their members' financial well-being.

What is the difference between a credit union and other banks? ›

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.

What is the difference between a bank and a credit union Quizlet? ›

A credit union is a cooperative, which means it is owned and operated by its members, as opposed to being owned by its stockholders like a bank. Your initial membership deposit makes you a part owner of the credit union and gives you a say in the credit union's decisions.

What is the main difference between a credit union and a bank quizlet? ›

Banks are for profit, owned by it's investors and paid; board of directors runs the bank. FDIC(Federal Deposit Insurance Corporation) insures customers money if bank goes out of business. Money up to 250,000. Credit Unions are NON profit, owned by it's members.

What are three ways a credit union differs from a bank? ›

7 Key Differences Between Credit Unions and Banks
  • Credit unions offer lower interest rates. ...
  • Credit unions have members. ...
  • Credit unions share profits with members. ...
  • Banks don't share profits with customers. ...
  • Credit unions are community-focused. ...
  • Credit unions offer free financial education.

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