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Credit Union Vs. Bank: The Difference Between Them And How To Decide

Hanna Kielar4-minute read
August 10, 2021

Credit unions and banks both offer a variety of financial products and services like checking accounts and loans. However, banks are for-profit institutions, while credit unions are nonprofits and only service their members.

To help you determine which financial institution is ideal for your unique needs and preferences, we’ve outlined the key similarities and differences between them.

How Are Banks And Credit Unions Similar?

Generally speaking, credit unions and banks offer the same types of products and services. From checking and savings accounts to mortgages, auto loans and credit cards, you’ll likely find a diverse set of offerings at both.

In addition, credit unions and banks usually offer convenient financial services, such as mobile banking, direct deposit and overdraft protection. Banks and credit unions also provide deposit protection by the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA), respectively.

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What’s The Difference Between A Bank And A Credit Union?

Although credit unions and banks boast similar offerings, the way they do business differs. Let’s take a closer look at the key differences between these financial institutions.

Business Structure

Banks are for-profit organizations that pay taxes on their profits. Credit unions, on the other hand, are nonprofits, so they’re usually off the hook for federal taxes. So, what does this mean for you as a customer?

Since banks have to pay taxes, they tend to charge higher fees than credit unions. Credit unions make their members a priority and charge lower fees as a result. Sometimes, they pay dividends to its members if they experience a surplus in income.

Membership Requirements

Banks are open to all customers. This means you can walk into any bank and take advantage of its products or services without signing up to be a member. A credit union differs in that you must be a member to utilize its offerings.

Most credit unions include members who have something in common, like living in the same community or working in the same industry. Therefore, you have to meet the eligibility requirements of a certain credit union before joining.

Customer Service

Banks prioritize profitability, and therefore usually place a greater focus on making money than providing good customer service. Credit unions, on the other hand, are known to offer a friendlier, more personalized customer service experience. They take the time to get to know their customers on a personal level.

Physical Availability And Technology

Most banks have multiple locations in various cities. So, you should have no problem finding a physical branch or ATM in your local area or far away from home. Banks also offer more online tools to make your experience more convenient.

Credit unions, on the other hand, aren’t as accessible. They are often confined to a specific area, so if you travel frequently for work or pleasure, you can’t expect to find a branch when you’re not home.

Additionally, some credit unions are a bit behind on technology, and features such as mobile banking, online banking, mobile deposits and fraud alerts. If you lead a busy lifestyle and need this type of convenience, a bank may be the way to go.

Rates

If you’re in the market for a mortgage or any other type of loan, chances are you’ll be able to secure a lower rate at a credit union. While credit unions usually offer more affordable rates on loans, they charge more fees for accounts.

A bank, however, offers higher rates on loans and credit cards, but reduced rates on accounts. Of course, this is a generalization, so it’s well worth your time to shop around and compare rates at banks and credit unions before making a decision.

Products And Services

Banks and credit unions both offer similar products and services such as checking accounts, savings accounts, business accounts, credit cards and mortgages. But, if you’re looking for a wider selection of offerings, you’re more likely to find it at a bank. Banks usually offer more investment products, too.

Credit Union Vs. Bank: FAQs

What Is A Major Advantage Of Credit Unions?

If you become a member of a credit union, you can expect a more individualized experience than you’d receive at a bank. This is because credit unions are generally smaller in size and have the time to get to know each member. When you use a bank for your financial needs, you may feel like you’re a number. A bank may be busy, and lack the ability to dedicate a great deal of time to you, since it has so many customers.

Are Credit Unions Better Than Banks?

Your personal needs and preferences will determine if credit unions are better than banks. If you’d prefer personalized service, a credit union is likely the way to go. However, if you value a greater variety of services, you may be better off at a bank. Before you pursue any credit union or bank, compare products, services, fees, daily balance requirements, interest on savings accounts and other factors to make an informed decision.

Are Credit Unions As Safe As Banks?

As long as a credit union is federally insured by the National Credit Union Insurance Fund, it’s just as safe as a bank. Just like the FDIC that insures banks, the NCUA’s National Credit Union Insurance Fund provides up to $250,000 of coverage. In most cases, checking accounts, savings accounts, money market accounts, certificates of deposit (CDs) and IRAs are protected.

Pros And Cons: Credit Union Vs. Bank

As you can see, there are advantages and disadvantages to either financial institution. Let’s take a look at their collected pros and cons below.

Pros And Cons Of Banks

Pros:

  • Banks can have multiple branches and ATMs in convenient locations all over the country.
  • Banks can offer new and current technology, such as mobile apps and helpful website features.
  • A wider range of services can be available at a bank, including investment opportunities.

Cons:

  • Customer service in banks can seem impersonal and business-oriented.
  • Banks tend to charge higher fees for their services.
  • Interest rates on loans and credit cards are generally higher with a bank.

Pros And Cons Of Credit Unions

Pros:

  • Credit unions can provide friendly and personalized customer service to its members.
  • Credit unions typically charge lower fees for services than banks.
  • Savings accounts with credit unions can have higher interest rates on deposits than banks, earning you more in the long run.

Cons:

  • Credit unions require membership to access their services.
  • Physical locations for credit unions are sparse and typically confined to certain areas.
  • Credit unions tend to be more behind on technological services than banks.

The Bottom Line: Bank Or Credit Union?

While a credit union isn’t the optimal choice for everyone, it can be right for you if you want to build a close-knit relationship with your financial institution. It may also be beneficial if you’d like to pay lower fees on your accounts, access more affordable financing and get approved for a loan as a low-income or financially distressed individual.

It all comes down to your lifestyle, and what is and isn’t important to you. Make sure you do your research, and weigh the pros and cons of both credit unions and banks prior to deciding on one.

For more information on credit unions and banks as well as other important financial topics, check out our other personal finance articles.

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Hanna Kielar

Hanna Kielar is an Associate Section Editor for Rocket Mortgage focused on personal finance, recruiting and personal loans. She has a B.A. in Professional Writing from Michigan State University.