Credit Union vs. Bank: Which Should You Choose?

If you’re trying to choose between a bank and a credit union, you’ll need to understand some key differences. The main distinction is that a bank is typically a for-profit institution and a credit union is a not-for-profit organization that operates to promote the well-being of its members.

Banks may have shareholders who expect to earn dividends. Credit unions, however, return profits to members through higher savings rates, reduced fees and lower loan rates. But both offer a variety of products and services, including checking and savings accounts.

Knowing the pros and cons of banks versus credit unions and their differences can help you choose between them.

Bank vs. credit union: overview

Credit union pros and cons

Consider the advantages and disadvantages of a credit union before deciding whether it could be a better fit for you than a bank. Here is a closer look at some of the benefits:

Pros:

• Better interest rates. Credit unions can typically offer higher interest rates on deposit accounts and lower rates on loans than banks because credit unions focus on creating value for members as not-for-profit organizations.
• Lower fees. A credit union also generally has lower fees because it uses its profits to reduce costs for members.
• Invested in local communities. Credit unions often partner with local organizations to keep their earnings circulating within their communities.
• Personalized services. Member satisfaction is the focus of credit unions. They’re known for excellent service and flexibility, helping you get approved for a loan even with less-than-perfect credit.

These are a few of the drawbacks of credit unions:

Cons:

• Membership rules. You’ll need to meet membership requirements to join a credit union. These might include living in a certain area or working in a specific profession, so not everyone can join.
• Limited number of branches and ATMs. You may not be able to find a branch outside of your area. Credit unions may also have more limited ATM networks than banks, although many participate in shared networks and provide mobile banking.
• Fewer services. Compared with banks, credit unions may not offer as many services, such as commercial banking and investment services.
• Slower to adopt technology. Some credit unions may lag banks in access to online services and tools.

Bank pros and cons

Here are the pros and cons of banks compared with credit unions.

Pros:

• Convenience. Banks may have vast branch and ATM networks across the country.
• Robust technology. Banks, especially online banks, may offer customers enhanced mobile apps and dashboard experiences.
• Product and service lineup. You’ll often find a variety of products and services at banks, such as wealth management, payment processing, specialized loans and more.

Cons:

• Added fees. Banks often charge fees for opening and managing accounts, and these fees can be higher than what credit unions charge.
• Less competitive rates. Bank loans usually have higher rates, and savings accounts may not earn as much interest.
• Less personalized service experiences. A large bank may not be as attentive as a credit union.

Are banks safer than credit unions?

Federally insured banks and credit unions are both safe places to keep your money.

Your deposits are protected at FDIC-insured banks and NCUA-insured credit unions up to the standard limit of $250,000. That’s per depositor or share owner, per insured bank or credit union, respectively, for each ownership category.

Different ownership categories — such as single accounts, certain retirement accounts, joint accounts, trust accounts and others — can extend coverage beyond the standard amount. To protect all your money fully, you may need to deposit money in different ownership categories or use more than one FDIC-insured bank or NCUA-insured credit union.

Overall, credit unions may be viewed as safer than banks because they are known to take fewer risks. Remain aware of deposit insurance dollar limits and factor that into your choice, along with the other features that are important to you.

Choosing between credit union vs. bank

The choice between a bank and a credit union is an individual one. Either of them is a solid option for your financial needs. Compare fees, rates, features and products, and ask yourself what you want from a financial provider before choosing one.

A credit union may be right for you if:

• It offers the right products. Credit unions can be a good resource for lower-cost home and auto loans, and many can work with you to help you qualify.
• It provides useful financial education programs. You may be able to access workshops on budgeting, buying a home or retirement planning, for example.
• It delivers the right digital tools. You may need to research credit unions that offer the online and mobile banking experience you seek.

A bank may be a better choice, however, if:

• You require products or services that local credit unions don’t offer. Banks may offer a wider range of services and products, even AI-powered virtual assistants.
• You enjoy the benefits despite higher fees or lower rates. Examples might be an app or a rewards credit card that you love to use.
• You think bigger is better. Some people desire the coverage that a big bank can provide, including a broad network of branches and ATMs. Bigger banks also tend to innovate more quickly.

If you can’t decide between using a credit union or a bank, you can use both. For example, you could join a credit union to access low rates on a mortgage or auto loan but keep your savings in an online-only bank with a great rate on a high-yield savings account.