Banks vs. Credit Unions: Understanding the Differences
JUMP TO Section Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.- Overview
- Key differences
- Benefits of choosing a bank
- Benefits of choosing a credit union
- How to decide which is right for you
- Common misconceptions
- FAQs
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- Banks and credit unions are both financial institutions that offer similar services.
- Banks are for-profit institutions, while credit unions are non-profits who serve communities.
- Banks and credit unions both come with their own perks and drawbacks.
Banks and credit unions both offer similar financial services. However banks and credit unions have different approaches on how to provide those financial services, and they come with different pros and cons for potential customers.
We'll go over how to choose between a bank and a credit union to help you figure out which institution is right for you.
Overview of banks and credit unions
What is a bank?
A bank is a for-profit institution that provides services such as savings and checking accounts, mortgages and loans, credit cards, and other financial services. There are several different types of banks, such as traditional brick-and-mortar banks, online banks, and smaller, local banks.
What is a credit union?
A credit union is very similar to a bank, in that it offers many of the same financial services. But credit unions have one big difference from banks.
"Credit unions are the non-profit version of banks," says Pamela Capalad, CFP, AFC, founder and CEO of Brunch & Budget, and co-founder of See Change. "Credit unions exist as a public benefit to the community and, specifically, to their members."
Key differences between banks and credit unions
Ownership and structure
Banks are frequently publicly-traded. This means that they'll have shareholders to answer to. They also need to remain profitable to stay open, so your needs as a customer aren't the only thing they need to worry about.
In comparison, credit unions are non-profit institutions. This means that credit unions are more focused on providing services to their members. It also means that credit unions have stricter requirements to join than banks typically do.
Most credit unions limit who can join them to people who live in a specific location or work for a specific area, so it might be harder to find a credit union you're allowed to join than a bank. This limited scope lets credit unions be more focused on community initiatives.
"Credit unions support their communities in ways that are more localized and more thoughtful than banks," especially big banks with wide customer bases, Capalad says.
Note: There are some credit unions that anyone can join as long as you live in the United States. Some of the credit unions are online-only institutions or have branches plus online-only bank accounts.
If you prefer banks over credit unions but still want an institution that focuses on local communities, consider a bank that's also a community development financial institution. CDFIs are financial institutions that help revitalize their communities, and they are certified by the U.S. Department of the Treasury. Many minority depository institutions, such as Black-owned banks, are CDFIs.
Fees and rates
Because credit unions are non-profit institutions, they tend to offer slightly higher rates and charge slightly lower fees than banks do. That being said, the best online banks might have higher rates than your local credit union in order to draw in customers.
What rates and fees your financial institution has depends heavily on your individual institution. When deciding which bank or credit union to go for, compare bank and credit union interest rates and fees to see how they match up with other options.
Customer service
Banks are more likely to offer 24/7 customer service than credit unions. But credit unions frequently offer a more personalized touch.
"I know clients who have had credit union accounts for a long time, who have a banker they've been working with for years, and who their parents work with," says Capalad.
In comparison, she says, banks are more likely to use call centers for their 24/7 support, so it's unlikely you'll talk to the same person twice.
If you know you'll need constant access to customer service lines, you might want to go with a bank. But if you prioritize getting more personalized service, a credit union might be a better choice for you.
Benefits of choosing a bank
Wide range of services
The services that banks can offer and the services that credit unions can offer largely overlap, such as deposit services, loans, and credit cards. But larger individual banks are likely to offer a greater breadth of services than individual credit union due to their size. If you want to keep all of your financial services in one place, check to see what services the banks and credit unions you're interested in offer.
Convenience and accessibility
Larger banks typically offer greater convenience and accessibility than credit unions. Banks are more likely to have large ATM networks than credit unions. The largest banks also have branches in several states and even countries, making it easier to use them while traveling.
Online banks like Ally and BrioDirect also offer convenience in that they can be accessed from any computer or phone. But they can come with downsides, too; being completely online means that you can't walk into a branch to get help from a teller in person.
Advanced technology
Banks frequently have access to better technology, such as better mobile banking apps. When it comes to banks, Capalad points out that one of the biggest benefits is technology.
"I've had clients who have tried credit unions for their businesses and did have to switch to a bigger bank because it was harder to do mobile deposit, for instance," says Capalad.
If you know you'll be interacting with the technological side of banking more, going with a bank might be a better option for you.
Benefits of choosing a credit union
Member-focused services
One of the biggest benefits of banking with a credit union is their focus on providing services that are tailored for their members.
For example, credit unions might offer loan or depository services to more of their members than banks would. "Unlike the bigger banks, their parameters for who they lend to and who can open accounts might be a little bit more flexible," says Capalad.
Lower fees and better rates
Whatever money credit unions make "goes back into the credit union and to their members, usually in the form of lower interest rate products for loans and higher interest rates for deposit accounts, like checking and savings," says Capalad.
This means that credit unions are more likely to offer good rates than banks, although depending on your local credit union, the best banks might offer better rates. You'll want to check with the specific institutions you're interested in to see what gives the best rates.
Community involvement
Because credit unions primarily exist to serve their members, credit unions can help carry out localized initiatives to help the community they're in, such as financial literacy campaigns or volunteer work.
All banks and credit unions are required to use a certain amount of their revenue to help their communities through the Community Reinvestment Act. However, because of their focus on local members, the funds that credit unions set aside for the CRA are more likely to go to causes that you personally care for.
If you want to know what your local credit union does for the community, Capalad recommends calling them and asking for the person who manages that credit union's CRA funds. With a credit union, you're much more likely to be able to talk to that person directly about what funds go where.
How to decide which is right for you
Assessing your financial needs
When deciding between a credit union and a bank, you should think about what services you need to have access to. For example, do you want to open a money market account, take out a car loan, and invest in a mutual fund, all at the same institution? You might want to check and see whether your local credit union or bank offers all those services.
You'll also want to consider things like how frequently you'll want to talk to customer service and whether developing a personal relationship with your institution is important to you. If you value constant access, you'll probably want a bank; if you would prefer a personal relationship, a credit union might be a better choice for you.
Considering your values and preferences
Consider what you value out of a financial institution and whether your local credit union or bank helps with causes you care for. For example, there are environmentally-friendly banks that work to make their banks as good for the environment as possible.
Most likely, if you care deeply about your financial institution using your money for causes you believe in, you'll either want to go for a credit union or a bank that's also a community development financial institution.
Common misconceptions
Misconceptions about banks
Many people feel like they have to have all their financial needs handled by one bank or that switching from one bank to another is too difficult to do. This can lead to feeling "stuck" with your bank and not getting the most out of your money.
In reality, advocating for your own monetary needs by opening a savings account with another bank or switching to an account with a better deal can help you get the most out of your money.
Misconceptions about credit unions
Capalad says the biggest misconception about credit unions is "not realizing that you can do almost everything in a credit union that you can do in a bank." While individual credit unions won't necessarily offer everything a large bank does, credit unions can offer everything from CDs to car loans to safety deposit boxes.
If you want to bank with a credit union but you're worried it won't offer all the services you need, check to see what they do offer — they might have exactly what you're looking for.
Banks vs. Credit Unions FAQs
Can anyone become a part of a credit union? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.Most credit unions have membership eligibility requirements, such as living in a specific area or working for a certain group to join them. However, there are some credit unions who allow anyone who lives in the US to join.
Are funds in banks and credit unions insured? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.Yes, banks and credit unions insure the money in your account up to $250,000 dollars per depositor. Banks are insured through the FDIC, while credit unions are insured through the NCUA.
Can I get a mortgage or auto loan from a credit union? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.Yes, you can get different types of loans, including mortgages, car loans, and lines of credit at credit unions. Many credit unions also offer more competitive rates on loans than banks do.
Kit Pulliam Personal Finance Insider editorial fellow Kit Pulliam (they/them) is a banking expert who specializes in certificates of deposit, savings accounts, and checking accounts. They’ve been reporting, editing, and fact-checking personal finance stories for more than four years.ExperienceKit has spent their career making complicated concepts more accessible to the average person. As a tutor in math and reading comprehension after college, they melded the certainty of numbers with the flexibility of words, a skill that has served them in the personal finance field since. Before Business Insider, Kit was an editorial specialist for Tax Analysts, diving into the tax code to help readers get the best information about a confusing but necessary subject.They find banking similar to taxes in that way: There are some things everyone needs to know because just about everyone needs to work with a bank — and you don’t want to end up with an account that doesn’t serve your needs.As interest rates change, they enjoy the fast pace of reviewing rates for products like CDs and high-yield savings, which can change daily and have a direct impact on readers’ money.ExpertiseTheir expertise includes:- Certificates of deposit
- Savings accounts
- Checking accounts
- CD rates
- Bank reviews
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