Credit Union vs Bank: What is the Difference and Which Should You Choose?

Cole Mayer  | 

Credit unions and banks accomplish the same goal – a secure place to store and manage your money – but have a few key differences. Which is best for you?

Credit Unions Require Membership

The first major difference is membership. While anyone can apply to a bank, credit unions require membership. This exclusivity is often based on geographic location, your employer (who may have their own credit union), place of worship, school, labor union, or even homeowners’ association. However, being part of a family that already uses the credit union may be enough for membership.

It is comparatively easy to open an account with a bank – and you can even apply online in some cases. Banks often only require identification, a parent if you are under 18, and money to deposit in your new account. There may be exceptions for foreign citizens or applicants with low credit scores, but other banks may be willing to work with you.

Credit Unions Tend To Have Lower Fees and Better Interest Rates

Generally, credit unions have higher interest rates on accounts, such as checking accounts or money market accounts, and lower fees than banks. With between 4 and 10 times the interest rate, that means you will be gaining more money passively – though this is still likely to not be very significant if you don’t keep much money in the bank.

Which might be significant is the difference in fees. There tend to be no monthly banking fees, or fees for not meeting a required minimum balance in an account. Withdrawals, checks, and electronic banking are also usually fee-free. While credit unions do have fees for overdrafts and bounced checks, it’s often a smaller fee than bigger banks.

Convenience: Banks Have More Locations and ATMs

Banks and credit unions have differing levels of convenience. For example, banks will have ATMs nationwide, but credit unions may only have local ATMs. To offset this, they may offer partnerships with other credit unions, allowing free use of their ATMs, or may pay the fees for a certain number of transactions per month. This may not be convenient if, for example, you travel often, or go on a roadtrip.

Credit unions tend to lag behind banks when it comes to technology. They have poor online services compared to banks. A credit union is less likely to have an app where you can deposit a check through your phone, or an online site where you can transfer money and apply for a new credit card.  

Banks Offer More Products and Services

Credit unions are smaller than national banks, and thus offer fewer products. Where a credit union may have a few types of accounts – such as checking or saving – a mortgage, personal loans, and a few credit cards to offer, a national chain could offer upwards of 20 or 30 credit cards, more loans and investments than you can shake a silver dollar at, and multiple types of checking and savings each.

Other than the obvious advantage of banks having more options, this may play out to meaning lower fees (though as discussed, not universally – this would be the exception, not the rule) and better rewards, such as more cash back.

Regulation and Insurance: FDIC vs NCUSIF

While the Federal Deposit Insurance Corporation oversees federally insured banks, meaning nearly every bank in America, they do not regulate credit unions. Banks are also regulated by the Federal Reserve and the Office of the Comptroller of Currency. State regulators oversee state-chartered banks, as well.

The National Credit Union Administration regulates credit unions at federal and state levels, and operates the National Credit Union Share Insurance Fund, the credit union world’s answer to the FDIC.

Credit Unions Are Nonprofit, Banks Are For Profit

Finally, while banks are for-profit, credit unions are nonprofits owned by their customers. Where your money may be used as a loan of anyone using a national bank, chances are, in a credit union, the money will be kept in the community. Your money will be used as another member’s loan.

Banks have a traditional ownership structure, with shareholders. Their voting rights correlate to the number and type of shares they own in the bank, which is essentially a company. They are typically paid for their service of being board members. Credit union members, on the other hand, each get a single vote regardless of what type of account they have, or how much money they have invested in the credit union. A credit union’s board is usually comprised of volunteers.

Which is Better?

This is a bit of a trick question – banks and credit unions serve very similar purposes, but there is no one-size-fits-all solution. They offer different products, have differing levels of convenience, and serve different geographic locations – local vs. national. Just remember – there is nothing stopping you from opening an account with each!

Image source

A former newspaper journalist, Cole spends his free time reading, writing, playing video games, watching movies, and learning about every subject under the sun. He lives with his wife and daughter in Idaho. Follow Cole on Twitter: @ColeMayer42

This post was updated February 27, 2019. It was originally published February 27, 2017.