What is the difference between a credit union and a bank? (2024)

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Credit unions and banks offer some similar services but work on a different business model.

Banks and credit unions are both financial institutions that offer products and services — such as checking accounts and loans — to help you manage your money. But while banks are for-profit institutions anyone can do business with, a credit union is a nonprofit that only offers services and products to its member-owners.

While these two institutions offer many similar products, there are fundamental differences in how they operate. The table below provides some basic insight into the difference between credit union and bank products and services.

BanksCredit unions
For-profit institutions that may be privately owned or publicly tradedNonprofit institutions owned by members
No membership requiredMembership required
Generally lower savings rates and higher feesOften higher savings rates and lower fees
May be national or localMay be national or local
Typically offer many, varied financial productsMay be more limited in the financial products offered
FDIC provides deposit insuranceNCUA provides deposit insurance

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  • How banks and credit unions are similar
  • The difference between credit union and bank products and services
  • Which is right for you?

How banks and credit unions are similar

If you’re a typical consumer looking to establish a banking relationship, chances are you’ll find what you need at either a bank or a credit union.

Here are some products and services that you’ll likely find at both credit unions and banks.

  • Checking and savings accounts
  • Money market accounts
  • Home loans
  • Auto loans
  • Small-business loans
  • Credit cards

Both banks and credit unions also typically offer direct deposit, mobile banking, ATMs and overdraft protection. And while some larger banks may have bigger ATM networks, some credit unions reimburse fees charged by ATMs outside of the credit union’s network, letting you withdraw money at more places for free.

Most credit unions and banks even provide similar protections for deposits, with up to $250,000 in deposited funds insured against loss. Insurance is provided by the Federal Deposit Insurance Corporation for banks, and by the National Credit Union Administration for credit unions. To ensure your institution is federally insured, look for an official NCUSIF- or FDIC-insured sign.

The difference between credit union and bank products and services

While the two financial institutions typically offer consumers the same products and services, there is a big difference between a credit union and a bank — and it all comes down to how the two do business and why they exist.

For-profit vs. nonprofit

Banks are for-profit institutions. And most are very profitable. Banks pay taxes on the profits they earn, and many are publicly traded companies with paid board members to answer to.

Credit unions are not-for-profits, so they’re generally exempt from federal taxes. Some even receive subsidies from organizations that sponsor them.

Because banks aim to make a profit — and have to pay taxes — they often charge higher fees than credit unions and pay lower rates to consumers. Credit unions, on the other hand, aim to serve their members. Credit unions return profits to members in a few different ways, including charging less interest on loans, charging lower fees and paying higher rates on savings accounts. They may also pay dividends to members if the credit union has surplus income.

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Members only vs. no-membership required

Most banks do business with any consumer who doesn’t have a history of banking problems. Credit unions are different — they aren’t open to just anyone. A credit union is a cooperative made up of members who share a common bond, such as working in the same industry, being part of the same religious institution, or simply living in the same community.

You can’t just join any credit union you want and start banking there — you must be eligible to become a member. Some credit unions are very restrictive about who can join, while others are open to anyone willing to pay a membership fee.

Credit union members typically vote to elect a volunteer board that manages the credit union. Because the board is often made up of members who also do their banking at the credit union, the focus of the board is to serve their community’s needs rather than generating profits for outside shareholders.

Personal service vs. more services

As part of a community, credit union members often receive more-personalized service than what big banks offer. For example, credit unions may be more willing to approve loans for their members, and they may provide financial education and outreach.

Because members must share a common bond, credit unions are often smaller than national banks, and as a result they may not be able to offer as many products. For example, not all credit unions offer commercial loans.

Their small size may also limit the number of branches each credit union has — though thousands of credit unions have now joined together to provide shared branch services and shared ATMs so that members can do business at credit unions across the country as if they were at a home branch.

Which is right for you?

While the benefits of credit unions seem to make these financial institutions the clear winner over banks, ultimately each individual bank and credit union needs to be judged on its own merits. Some large national credit unions might provide less-personalized service than smaller community banks, while other credit unions may be so small they don’t even offer basic modern services, like mobile banking.

To decide where to maintain your financial relationships, think about what’s important to you and carefully compare the difference between credit union and bank services. Look at fees, minimum deposit requirements, daily balance requirements, interest paid on savings accounts and charged on loans, and the individual financial institution’s reputation.

Bottom line

Credit unions and banks offer similar products, but aren’t the same. Credit unions generally provide more-personalized service and give you a say in how the financial institution is run. And because they’re nonprofits, credit unions may also provide more-competitive rates, lower fees and an easier loan process. But since they aren’t always as large as banks, credit unions may be more limited in services.

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About the author: Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbo… Read more.

What is the difference between a credit union and a bank? (2024)


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

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.

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 is one reason that a credit union is better than a bank? ›

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.

What's the difference between a bank and a credit union Reddit? ›

Credit unions usually have better loan deals and extend them out to more people. They usually extend everything to more people. Less fees for standard accounts and cheaper products in general. I know most credit unions charge very little for cashier checks a couple dollars compared to 10+ at a bank.

What are 3 differences between a bank and a credit union? ›

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.

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's the biggest difference in credit unions and typical banks? ›

The biggest is that banks are for-profit institutions typically owned by shareholders, while credit unions are not-for-profit entities owned by their members. These different business structures also lead to differences in the missions of credit unions vs. banks.

What are 3 similarities between a bank and a credit union? ›

Similarities Between Credit Unions & Banks

For starters, both institutions offer savings accounts, personal loans, auto loans, mortgages and checking accounts. Both institutions provide services for individuals, and many provide businesses banking as well.

What are the main differences between credit unions banks and finance companies? ›

​Banks emphasize business and consumer accounts, and many provide trust services. Credit unions emphasize consumer deposit and loan services. ​Savings institutions emphasize real estate financing.

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.

What is safer a bank or credit union? ›

However, because credit unions serve mostly individuals and small businesses (rather than large investors) and are known to take fewer risks, credit unions are generally viewed as safer than banks in the event of a collapse. Regardless, both types of financial institutions are equally protected.

Who are the top 5 credit unions? ›

  • No. 1 — Navy Federal Credit Union.
  • No. 2 — State Employees' Credit Union.
  • No. 3 — Pentagon Federal Credit Union.
  • No. 4 — Boeing Employees' Credit Union.
  • No. 5 — SchoolsFirst Federal Credit Union.
  • No. 6 — Golden 1 Credit Union.
  • No. 7 — America First Credit Union.
  • No. 8 — Alliant Credit Union.
Apr 16, 2024

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

Before you officially make the switch, it's a good idea to consider what you could lose by deciding to bank with a credit union.
  • Mobile Banking Might Be Limited or Unavailable. ...
  • Fees Might Not Be as Low as You Think. ...
  • Credit Card Rewards Might Be Limited. ...
  • ATMs and Branches Might Not Be Convenient.
Mar 21, 2023

What's the best credit union to go through? ›

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.

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.

Is your money safe in a bank or credit union? ›

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.

What is the benefit of a credit union? ›

Local and personalized service.

Credit unions are a great choice if you are looking to have a voice in the way your financial institution is run, save money on interest and fee expenses, earn more on your savings, build relationships with those who serve you, and get timely decisions on your financial applications.


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