Credit Union Vs. Bank: Which Is The Right Option For You?

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.

If you are trying to decide between a credit union vs. bank, we’ve outlined the key similarities and differences between them to help you determine which financial institution is ideal for your unique needs and preferences.

What’s The Difference Between Credit Unions And Banks?

Generally speaking, credit unions and banks offer the same types of products and services. Credit unions and banks both typically offer checking accounts, savings accounts and other financial services. 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.

While credit unions and banks both offer similar financial services, the primary difference is in their business model – credit unions are not-for-profit organizations and banks are for-profit. Here's a quick look at some of the key differences between credit unions and banks.

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.

Since banks have to pay taxes, they tend to charge higher fees than credit unions. Since credit unions are nonprofit organizations, they tend to charge lower fees as a result. Sometimes, they even pay dividends to their members if they have a surplus of 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. Other credit unions allow people to pay a nominal fee to join a particular organization which opens up membership to the credit union.

Customer Service

Banks serve a wide variety of customers. While they may offer technology and tools to make interacting with accounts easier for clients, they have a bit less flexibility in personalization of service. Credit unions may offer a friendlier, more personalized customer service experience because of their limited membership. 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 area or far from home. Banks also typically offer more online tools to make your experience more convenient.

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

Pros And Cons Of Credit Unions: At A Glance

While credit unions come with some advantages, there are also a few disadvantages that you should be aware of before deciding to become a member.

Pros And Cons Of Banks: At A Glance

While banks may be the right choice for some consumers, you'll want to make sure that you have a good grasp on some of the pros and cons of using a bank:

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. Credit unions often charge less fees and give better rates to their customers, since each customer is also a member of the credit union.

Are credit unions better than banks?

Your personal needs and preferences will determine if credit unions are better than banks. If you’d prefer more individualized service, a credit union may be 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.

The Bottom Line: Banks And Credit Unions Have Their Pros And Cons

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 want more personalized service, more affordable financing and are looking to get approved for a loan as a low-income or financially distressed individual. If you’re looking for a wider variety of products, services and technology, consider looking for a bank that meets your needs instead.

It all comes down to your lifestyle, and what’s 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.

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