What is the difference between a bank and a credit union?
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.
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.
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.
Ownership: Community banks are owned by shareholders, who may be individuals or institutional investors. Credit unions, on the other hand, are owned by their members, who are also their customers. Membership: Community banks are open to anyone who wants to become a customer, regardless of where they live or work.
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.
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.
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.
One thing banks and credit unions agree on, however, is this one difference in banks and credit unions: Banks are profit-making companies owned by stockholders. Credit unions are not-for-profit businesses owned by their members.
Credit unions tend to have lower interest rates for loans and lower fees. Banks often have more branches and ATMs nationwide. Many credit unions have shared branches and surcharge-free ATMs provided through the CO-OP Shared Branch network. Banks have historically had better technology online and for mobile apps.
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.
Why use a credit union instead of a bank?
Credit unions typically have lower fees and offer more competitive interest rates on loans and credit cards and high dividend rates on deposit accounts. They are not profit-driven, allowing them to pass on their earnings to members in the form of better rates and fewer fees.
If you want higher deposit rates and don't need access to branches across the country, for example, you might prefer a credit union. If you want access to in-person services and don't mind lower interest rates, a bank might be more suitable.
Bottom Line. Choosing a bank or credit union comes down to what you value. Consumers who value technology and access to in-person services may prefer banks, while those who value better rates and customer service may be better suited for credit unions.
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.
If the bank fails, you'll get your money back. Nearly all banks are FDIC insured. You can look for the FDIC logo at bank teller windows or on the entrance to your bank branch. Credit unions are insured by the National Credit Union Administration.
| Bank | Forbes Advisor Rating | Learn More |
|---|---|---|
| Chase Bank | 5.0 | Learn More Read Our Full Review |
| Bank of America | 4.2 | |
| Wells Fargo Bank | 4.0 | Learn More Read Our Full Review |
| Citi® | 4.0 |
The differences between credit unions and banks
Put into context, the rate of failure at both types of institution is low. But one upside with credit unions is that they're less likely to make risky investments.
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- Alliant Credit Union. Alliant offers an above-average interest rate for savings. ...
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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.
Is it safe to put your money in a credit union?
Which is Safer, a Bank or a Credit Union? As long as you are banking at a federally insured institution, whether it is a credit union insured by the NCUA or a bank by the FDIC, your money is equally safe. Credit unions are owned by the members—your savings account at a credit union is a share of ownership.
Federally insured credit unions offer a safe place for you to save your money, with deposits insured up to at least $250,000 per individual depositor. The National Credit Union Administration (NCUA) is the independent agency that administers the NCUSIF.
The Consumer Financial Protection Bureau recommends keeping your credit utilization under 30%. If you have a card with a credit limit of $1,000, try to keep your balance below $300.
Through right of offset, the government allows banks and credit unions to access the savings of their account holders under certain circ*mstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.
Keeping a minimum amount of money in checking at all times is wise because it can help you to avoid banking fees. The fewer fees you pay to the bank, the money you get to keep. Banks charge a variety of fees for checking accounts, including monthly maintenance fees and overdraft fees.
