Bank vs. Credit Union

What Is the Difference Between Banks and Credit Unions?

The main differences between banks and credit unions arise from the fact that banks are for-profit institutions while credit unions are not-for-profit. Banks also tend to be larger and may offer a wider range of products than credit unions. Credit unions, however, are smaller institutions that might offer better interest rates and fewer fees associated with transactions.

Ownership and Membership

A significant difference between banks and credit unions is the way they structure ownership. Banks operate similarly to other corporations and are owned by their shareholders. The bank’s customers have no ownership in the bank and do not have the power to make decisions about how the bank operates.

Credit unions, however, are owned and operated by their members as a not-for-profit organization. When you join a credit union, you’re able to use its products and services — but you can also vote for the union’s board members or run for election to the board yourself. Because credit unions are not-for-profit, profits generated by credit unions are paid back to the members in the form of higher savings rates and lower loan rates.

Insurance

Whether you choose to open an account at a bank or a credit union, your money will most likely be insured by the federal government. Banks are insured by the Federal Deposit Insurance Corporation (FDIC), while credit unions are insured by the National Credit Union Administration (NCUA).

Both institutions are backed by the full faith and credit of the U.S. government, so you can feel confident that your money is safe in either. The standard deposit insurance coverage limit for both the FDIC and NCUA is $250,000 per depositor, per institution, per account ownership category.

Products and Services

Banks and credit unions offer many of the same services and products to their customers. Both institutions offer products like checking accounts, savings accounts, certificates of deposit (CDs) and loans including mortgages, auto loans and personal loans. Both banks and credit unions offer services to individuals and many also provide banking services to businesses.

Interest Rates and Fees

Because banks must turn a profit for their shareholders, you’re likely to find higher interest rates for loans and lower interest rates on savings accounts or CDs than offered by their credit union counterparts. However, some online banks offer highly competitive interest rates on high-yield savings accounts.

In general, credit unions offer lower rates for loans and higher interest rates for financial products like CDs and savings accounts. This is because credit unions are owned by their members, so they pass any profits generated on to those members as better interest rates on the credit union’s products.

Another result of the credit union business model is that they typically have lower fees. Credit unions are also more likely to disclose all fees associated with products upfront, whereas banks may charge hidden fees.

Mortgages

Banks and credit unions can both offer mortgage loans, and both typically provide a relatively fast turnaround on loan decisions. However, there are some key differences in how these institutions offer mortgage loans.

Since they are larger financial institutions, banks are more likely to have a dedicated team of mortgage lenders. Banks will generally also offer a more diverse range of mortgage options, such as loans with a low down payment or specialized options like USDA and VA loans.

You might, however, find more competitive mortgage rates at your local credit union. Credit unions offer lower interest rates for mortgages than banks, although they may not have the same number of mortgage loan options. Many credit unions will also provide additional financial literacy resources to customers as a way of offering more personalized service.

Technology and Features

Banks tend to offer more technological resources than credit unions. For example, most banks now offer apps that customers can use to check their balances or even deposit checks right from their phones. Banks might also have more physical branches and ATMs, making them more convenient than credit unions.

Credit unions can also offer services like mobile banking, but these institutions usually have fewer physical locations where you can go to ask questions or complete transactions in person.

Pros and Cons of Credit Unions and Banks

Both banks and credit unions have advantages and disadvantages that can have a big impact on your personal finances. To help decide if a bank or credit union is best for you, here are some pros and cons to consider.

Credit Unions vs. Banks FAQs