Updated
By:Kailey Hagen andCole Tretheway
Our Banking Experts
Fact CheckedEric McWhinnie
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 Unions | Brick-and-Mortar Banks | Online Banks | |
|---|---|---|---|
| Primary Goal | Service members | Make profit | Make profit |
| Interest rates | Usually better | Typically lower | Often the best |
| Fees | Lower fees | Higher fees | Lowest fees |
| Services | Basic | Wide range | Usually limited |
| Customer Service | Personalized | Varies | Mainly online/phone |
| Branch Availability | Limited | Extensive | None |
| ATM Network | Limited but often in networks | Extensive | Usually reimburse fees |
| Tech Features | Basic | Good | Excellent |
| Regulation & Insurance | NCUA, similar to FDIC | FDIC | FDIC |
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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| Account | APY | Promotion | Next Steps |
|---|---|---|---|
Open Account for SoFi Checking and Savings Member FDIC. Rating image, 4.75 out of 5 stars. 4.75/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.Min. to earn: $0 | New customers can earn up to a $300 bonus with qualifying direct deposits! | Open Account for SoFi Checking and Savings |
Open Account for American Express® High Yield Savings Member FDIC. Rating image, 4.00 out of 5 stars. 4.00/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 4.35% Rate info4.35% annual percentage yield as of April 2, 2024Min. to earn: $1 | N/A | Open Account for American Express® High Yield Savings |
Open Account for CIT Platinum Savings Member FDIC. Rating image, 4.75 out of 5 stars. 4.75/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | 5.05% APY for balances of $5,000 or more Rate info5.05% APY for balances of $5,000 or more; otherwise, 0.25% APYMin. to earn: $100 to open account, $5,000 for max APY | N/A | Open Account for CIT Platinum Savings |
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
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.
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.
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 does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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.
