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)


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

Banks are typically for-profit entities owned by shareholders who expect to earn dividends. Credit unions, on the other hand, are not-for-profit, member-owned cooperatives that are committed to the financial success of the individuals, families, and communities they serve.

Is a bank or credit union better for me? ›

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 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 right now? ›

If you're looking for a short answer, you'll be happy to know that we're not making you read the whole post: Credit Unions and banks are roughly identical in safety because deposits at both are insured by the Federal government to $250,000.

Is your money safe 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.

What's the best credit union to join? ›

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.

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.

Why should I use a credit union instead of a bank? ›

Member-based mentality results in better customer service. Credit unions are owned by their members, so members are usually the focus of the institution. This means that credit unions are generally known for providing better customer service than banks. Nonprofit structure means better rates and lower fees.

What makes credit unions safer than banks? ›

This is because credit unions use fewer risks, serving individuals and small businesses rather than large investors, like a bank. Credit unions are member-owned, not-for-profit organizations that serve a smaller, more defined client base within a community.

What is a weakness of a credit union? ›

Weaknesses of Credit Unions

The membership of a credit union is restricted to a specific community, most often a religion, profession, or geographic location. For a member to be eligible to join a credit union, they must belong to a group listed in the credit union's charter.

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.

What are 3 pros and 3 cons for credit unions? ›

The Pros And Cons Of Credit Unions
  • Better interest rates on loans. Credit unions typically offer higher saving rates and lower loan rates compared to traditional banks. ...
  • High-level customer service. ...
  • Lower fees. ...
  • A variety of services. ...
  • Cross-collateralization. ...
  • Fewer branches, ATMs and services. ...
  • The biggest negative.
Oct 4, 2022

Is my money safe in a credit union if the economy crashes? ›

How your money is protected. Money deposited into bank accounts will be safe as long as your financial institution is federally insured. The FDIC and National Credit Union Administration (NCUA) oversee banks and credit unions, respectively. These federal agencies also provide deposit insurance.

What are the biggest risks facing credit unions? ›

Credit unions face a multitude of risks including risks related to credit, interest rates, liquidity, transactions, compliance, strategy, and protecting their reputation.

Which is safer 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 are credit unions so much better than banks? ›

Why Choose a Credit Union? Lower interest rates on loans and credit cards; higher rates of return on CDs and savings accounts. Since credit unions are non-profits and have lower overhead costs than banks, we are able to pass on cost savings to consumers through competitively priced loan and deposit products.

Are credit unions safer than banks during 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 is the biggest difference between a bank and a credit union? ›

What makes banks and credit unions different from each other is their profit status. Banks are for-profit, meaning they are either privately owned or publicly traded, while credit unions are nonprofit institutions.

What are the disadvantages of banks? ›

One of the major downsides of traditional banking is the potential for fees. Traditional banks often charge various fees for services such as overdrafts, ATM withdrawals, and account maintenance. These fees can quickly add up and eat into your savings if you're not careful.


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