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Credit Union vs Bank: Which Is a Better Place for Your Money?

Written by Dave Grant | Published on 3/26/2018

On the surface, banks and credit unions appear to be very similar. However, if we do a little bit of digging, we see that these two regulated entities differ in specific ways.

What's the difference between a credit union vs a bank?

In terms of ownership, a bank is a for-profit organization that must answer to current shareholders on a regular basis. A credit union, on the other hand, is a not-for-profit organization that is created to serve their members. While both banks and credit unions offer similar services to account holders, they are operated differently and vary in the benefits they offer.


Banks operate to turn a profit, and are influenced by their executives, board and shareholders. When you set up an account at a bank, you are loaning them your money. You have the expectation that you’ll get that money back whenever you need it by making a withdrawal. However, the money that you view as simply “sitting in your account” is doing anything but sitting stagnant.

The bank takes the money you deposit and aims to make a profit with it by investing your money, or making loans with your funds in order to collect interest payments. In order to do this, banks pay you interest on your deposits. You earn interest on checking and saving accounts, as well as any CDs you have through your bank.

If you’re banking with a traditional bank, like Bank of America, the interest you earn on most accounts will be smaller than most credit unions. Large, national, brick-and-mortar banks have high operating and marketing expenses, and because they need to consistently turn a profit, you won’t receive much of the profits they earn through investing and loaning your money. There is some difference when you compare an online bank to a brick-and-mortar bank, as online banks have less overhead and can provide higher rates for the same type of accounts.

Credit unions

Credit unions are not-for-profit organizations that are established with the sole purpose of offering value to their members. Rather than answering to investors, a credit union has their account holders. All people who hold an account with a credit union are partners or part-owners.

Rather than viewing you as a customer, credit unions view you as a part-owner. This means you have the right to vote for board members, and your ideas about benefits hold more weight than they would at a bank.

While credit unions may seem to have significant benefits for account holders in comparison with big banks, they also tend to not have the extra funds for expensive technology, mobile applications or a surplus of physical brick-and-mortar locations in your area.

Which is a safer place to deposit money?

Banks and credit unions insure the money account holders deposit with them. Banks are insured through the Federal Deposit Insurance Corporation (FDIC), and credit unions are insured through the National Credit Union Administration (NCUA). Both the FDIC and the NCUA are independent of the banks and credit unions they respectively insure, and they’re regulated by the federal government.

Despite the clear differences between banks and credit unions, the insurance coverage through the FDIC or the NCUA is similar. The FDIC covers up to $250,000 for most accounts – including single, joint, certain retirement, revocable and irrevocable trust, employee benefit plan, corporation and government accounts. The NCUA also covers individual accounts up to $250,000.

The FDIC and the NCUA explicitly list the accounts they don’t cover, which include annuities, stocks, bonds, mutual funds, government securities, U.S. Treasury bills, bonds, or notes and both government or municipal securities.

Pros and cons of credit unions

Credit unions offer a wide range of benefits – and often have lower account fees and higher interest rates on both traditional checking and savings accounts. However, they also have a few drawbacks that you should take into consideration.


  • Credit unions offer higher interest rates when compared with traditional, brick-and-mortar banks in both savings and checking accounts.
  • Because credit unions are designed to serve their owners’ community, they offer accounts with lower fees than the average bank. For example, bank overdraft fees average $31.84, while a credit union averages $29.19.
  • An account holder at a credit union has significantly more “pull” with the organization than they would at a bank due to their part-owner status.
  • A credit union is a community – which means account holders can get involved with voting for board members and making other key decisions that impact the organization.
  • As credit unions become increasingly popular, they’re growing faster than traditional banks and taking up a larger market share. This could mean better rates on loans and more favorable terms in the future.
  • Kasasa rewards checking accounts are often available at credit unions or local banks, and offer a high APY. These reward checking accounts require members to meet certain criteria, outlined below, to access better perks.


  • Some credit union executives have admitted that they have not been seeking to attract millenials as a key client demographic. So while they may have some technology in place that millenials would like, their messaging is not attracting these clients.
  • Credit unions often have fewer locations than banks. There are approximately 90,500 bank branches nationwide, compared with 20,800 branches for credit unions.
  • Loan terms are more stringent, and credit unions have a higher rejection rate when compared with banks.

Ken Tumin notes that credit unions often have a leg up on both traditional and internet banks due to their involvement with Kasasa – a company that offers high interest checking and savings accounts.

“Kasasa created rewards checking accounts that are now offered by over 500 community banks and credit unions,” Tumin said. “They’re free, with no monthly fees, and offer higher interest rates.” Tumin notes that there are some qualifiers to a Kasasa rewards checking account – namely having a set number of debit card transactions over the course of a single monthly billing period.

Kasasa rewards checking accounts are typically only found at credit unions and local banks, and some offer over 3.50% APY – much higher than the average internet bank’s checking account APY.

Pros and cons of banks

Although people have long lamented the corporate bureaucracy of the banking world, there’s a reason they’ve been so successful. Banks have the employee numbers to staff more locations, and they have the funding to consistently upgrade the experience of their account holders by adding new technology, debit card options and more account features.

While traditional banks may fall short when it comes to offering attractive interest rates and lower fees, a new surge of online banks continue to impress account holders with interest rates that often outperform those at a credit union. In fact, in a recent study, we found the average savings account at an online bank earned an APY of more than four times the typical credit union or traditional bank.


  • Banks have more brick-and-mortar locations.
  • They have the funding to function on a national scale.
  • Banks usually have a better technology platform than credit unions.
  • Online banks offer high interest rates and low fees on both checking and saving accounts.


  • Traditional banks tend to have high fees.
  • Checking and saving accounts through a bank can have low interest rates.
  • Shareholder interests may come ahead of customers.

Which is the best option for you?

There is no right option when it comes to selecting a credit union vs a bank. When you’re looking to open a deposit account, there are two key things to look for: interest rate and fees.

“The higher the interest rate, the better,” said Tumin.

Credit unions tend to offer the most “bang for your buck” with higher interest and lower fees. They are usually the best fit for people who are local, want to be involved in their banking experience both through part ownership in the credit union and seek better customer service.

Banks tend to be the best fit for people who value updated technology options with their banking experience and need access to locations nationwide. If an individual doesn’t need the experience of a traditional brick-and-mortar bank, they might consider an internet bank as they often outperform even credit unions given their higher interest rates and lower fees.

Although our 2017 study shows that internet banks often have a higher APY than traditional banks or credit unions, Tumin notes that individuals should do research on their local credit unions and banks to see if they offer Kasasa rewards checking accounts to ensure they’re getting the most interest from their deposit account.

Deciding where you want to keep your money is important. All too often, we make a decision based on advertisements or ease of access, when there are more important factors to consider in a banking experience.

While internet banks or credit unions that offer high-yield checking and savings accounts may seem like the best way to get the most for your money, everyone’s situation is unique. In some cases, earning slightly more interest with a credit union or Kasasa rewards account at a local bank may not outweigh the fact that you need access to bank and ATM locations nationwide that a big bank can offer you. The decision you end up making needs to make sense for both your finances and your lifestyle.


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