Pros And Cons Of Credit Unions | Bankrate (2024)

Credit unions have a lot in common with banks, but there are significant differences, too. Unlike banks, credit unions are not-for-profit financial institutions that are owned by their members, which gives them some advantages over banks.

Even though they offer many of the same products and services as banks, credit unions have a few drawbacks. Here are the pros and cons of credit unions.

Pros of credit unions

  • Lower borrowing rates and higher deposit yields. Credit union profits go back to members, who are shareholders. This enables credit unions to charge lower interest rates on loans, including mortgages, and pay higher yields on savings products, such as share certificates (the credit union equivalent of certificates of deposit).
  • Variety of products. Large credit unions, such as Navy Federal Credit Union, have product lineups that rival many banks, including checking accounts, savings accounts, money market deposit accounts, share certificates, mortgages, auto loans, student loans and credit cards.
  • Insured deposits. If a credit union is a member of the National Credit Union Administration, members’ deposits are federally insured by the NCUA’s Share Insurance Fund for up to $250,000 per depositor.
  • More personal service. Credit unions are usually local or regional, which means service may be more personal.
  • Educational resources. Credit unions tend to stress financial literacy, so it’s common for them to offer seminars, articles, calculators and other tools to help their members sharpen their money skills.
  • Member-owned. Members of a credit union are both customers and stakeholders, meaning that every member has a say in voting on specific policies. This process ensures that the credit union’s decisions reflect the needs of its actual customers, rather than appeasing external stakeholders.

Cons of credit unions

  • Membership required. Credit unions require their customers to be members. Account holders must meet eligibility requirements to use the products and services. Membership requirements are often lenient, though, and joining may be as easy as depositing $5 into a savings account or making a one-time donation to a sponsored organization or charity.
  • Not the best rates. You can probably find a higher annual percentage yield (APY) on a share certificate or savings account, or a lower rate on a loan, at online-only banks, which do not have the expense of maintaining branches.
  • 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.
  • May offer fewer products and services. Smaller credit unions may not offer as many loan and deposit products as big credit unions and banks. They also might not offer the latest technology, such as online banking, mobile banking and peer-to-peer payment platforms, such as Zelle.

Credit unions vs. banks: How they differ

Banks and credit unions offer many of the same products and services, but there are some noteworthy differences between them.

  • Banks are for-profit institutions that generally charge more fees and require higher minimum deposits and balances to open and maintain accounts. Banks pay taxes, whereas credit unions are not-for-profit institutions that don’t pay federal taxes.
  • Banks are accountable to shareholders who want to maximize profits. Credit unions return all profits to their members by paying higher APYs on deposits and charging lower interest rates on loans.
  • To do business with a credit union, you have to become a member, but banks are typically open to anyone. You can walk in to any bank and apply for a loan or open an account without having to meet membership requirements.
  • Online-only banks and traditional banks tend to have more digital tools to offer customers, such as mobile banking and online banking. Credit unions, especially smaller ones, may be less technologically advanced.

When deciding between a credit union and a bank, consider your priorities. Credit unions are rooted in serving their members and can provide a more personalized banking experience.

On the other hand, banks may offer a broader range of services, advanced digital platforms and extensive branch and ATM networks, making them best suited for those who value widespread access and a diverse range of financial products.

If you’re a saver, make sure to compare top APYs at online banks and credit unions to find the best rates.

Next steps to decide on a credit union

Choosing the right credit union for your financial needs can help ensure that you get the best benefits and convenience. With an abundant variety of credit unions to choose from, here are some steps to guide you in making an informed choice:

  1. Understand membership qualifications. Many credit unions have specific membership requirements to join, such as living in a specific area, working in a certain profession or having military ties. Not all credit unions have strict membership requirements, though.
  2. Check for nearby locations. If you value in-person accessibility, see where the credit union’s branches and ATMs are located.
  3. Consider the credit union’s digital tools. If online transactions are your go-to, research what technology the credit union offers and check its mobile app reviews.
  4. Look out for fees, such as monthly maintenance fees, ATM fees and overdraft penalties.
  5. Compare APYs at different credit unions if you’re seeking out a savings account that will pay you decently.
  6. Ensure the credit union is federally insured by the National Credit Union Administration (NCUA), which provides protection in case of a credit union’s failure.

Bottom line

A credit union may be a good option if you’re looking for higher APYs, lower loan costs and a closer relationship with a financial institution. Consider the pros and cons of credit unions, do your homework and make the choice that’s best for you.

— Bankrate’s René Bennett contributed to an update of this story.

Pros And Cons Of Credit Unions | Bankrate (2024)


What are the pros and cons of a credit union? ›

The pros of credit unions include better interest rates than banks, while the cons include fewer branches and ATMs.

Which of the following is a downside for credit unions? ›

Choosing to use a Credit Union

The downside of credit unions include: the eligibility requirements for membership and the payment of a member fee, fewer products and services and limited branches and ATM's.

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 are the problems facing credit unions? ›

Here are the top 10 challenges credit unions are navigating in order to keep up, and stay both relevant and competitive.
  • Digital & AI Transformation. ...
  • Regulatory Compliance. ...
  • Cybersecurity Threats. ...
  • Competing with Larger Banks and Fintechs. ...
  • Membership Growth & Awareness. ...
  • Aging Membership. ...
  • Talent Acquisition and Retention.
Oct 13, 2023

What are the benefits of credit unions? ›

Credit Union Advantages: Why Bank At A Credit Union

Higher returns, better savings, low interest on borrowings, and a sense of community – these are just a few of the benefits of credit union membership.

What are the pros and cons of banks? ›

In conclusion, traditional banking offers a range of advantages such as personalized customer service, physical branches, and a sense of security and trust. However, it also has its drawbacks, including potential fees, limited accessibility, and lengthy processes.

What is the main downside to opening an account at a credit union? ›

Credit union disadvantages

Membership may require meeting certain work, residential or occupational requirements. Many typically offer branches only in a limited area or region.

Are credit unions failing like banks? ›

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.

Why choose a credit union over a bank? ›

The Bottom Line. 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.

Is it better to join a bank or a credit union? ›

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.

Should I be worried about credit unions? ›

Money held in credit union accounts is insured through the National Credit Union Administration (NCUA). Many types of accounts are covered by insurance such as checking, savings, certificates of deposit, money market accounts, and others.

Is it better to save money in a bank or credit union? ›

Credit unions typically provide better savings and lending rates, van Faassen says. NCUA insurance: Federally insured credit unions are backed by the U.S. government. Your money is safe if a credit union fails.

What is the biggest risk to credit unions? ›

Liquidity Risk: The risk of not having sufficient liquid assets to meet the credit union's short-term obligations, which could impact its ability to function effectively and serve its members. Interest Rate Risk: Credit unions often have a significant portion of their assets and liabilities tied to interest rates.

Are credit unions in decline? ›

NCUA: Number of Credit Unions Continues Decline, But Membership Is Up. The number of federally insured credit unions declined to 4,604 institutions in the fourth quarter of 2023, a drop of 156 financial institutions from a year ago, the National Credit Union Administration said Tuesday.

How trustworthy are credit unions? ›

Why are credit unions safer than banks? Like banks, which are federally insured by the FDIC, credit unions are insured by the NCUA, making them just as safe as banks. The National Credit Union Administration is a US government agency that regulates and supervises credit unions.

Is a credit union a good idea? ›

The Bottom Line. 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.

What is the biggest benefit of using a credit union? ›

The main benefits of a credit union vs. a bank are that credit unions tend to offer better rates and customer service, lower fees, and a national network of ATMs. However, a bank may offer more branches and products than a credit union.

Is your money safer in a credit union? ›

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.

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