How is a credit union different than a bank? (2024)

FAQs

How is a credit union different than a bank? ›

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. Credit unions also tend to serve a specific region or community.

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.

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.

With a bank, the board of directors are elected by the stockholders. With a credit union, the board of directors are elected by the members.

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.

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.

Since credit unions are member-driven and not for profit, members receive higher interest rates on savings, lower rates on loans and lower fees. On the other hand, profits made by banks are only distributed among their shareholders, meaning that the money banks make isn't returned to the people they make it from.

The Federal Deposit Insurance Corporation (FDIC) provides insurance for bank deposits, and the National Credit Union Administration (NCUA) does the same for credit unions. Whether you choose a bank or credit union to deposit and hold your money, your funds are generally safe.

commercial banks are for-profit and credit unions are not-for-profit.

What are 2 disadvantages of using a credit union instead of a bank? ›

Funds Availability

Some banks make a portion of the check available immediately or within one business day. Banks typically must make the first $225 available the next business day and the balance of the check available in two business days.

Building societies offer a wide range of financial products and services, including mortgages, savings accounts, and other financial products, while credit unions tend to just focus on providing affordable loans and savings accounts to specific communities, such as a particular company or organisation.

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.

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.

Credit unions are backed by the National Credit Union Share Insurance Fund (NCUSIF), which is equivalent to the Federal Deposit Insurance Corporation (FDIC) for banks. This safety net guarantees your funds, typically up to $250,000 per depositor, should any unexpected turbulence occur.

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.

Generally, credit unions are viewed as safer than banks, although deposits at both types of financial institutions are usually insured at the same dollar amounts. The FDIC insures deposits at most banks, and the NCUA insures deposits at most credit unions.

Any income the credit union generates through interest, fees and loans is then used to fund community projects, reinvest into the organization or provide services that directly benefit members, like paying higher savings interest rates.