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Credit Union vs Bank: Learn the Differences

Published March 8, 2024
4 min read

Table of contents

Key points about: using a bank or credit union

  1. Both banks and credit unions offer personal banking tools and products, like loans, credit cards, and savings accounts.

  2. Credit unions are not-for-profit and member-owned. They often have low fees and good rates for members.

  3. Banks are for-profit businesses owned by shareholders. They typically offer a variety of investment and saving tools and have more branches.

The establishments you trust with your money often play a major role in your financial life. While national or local banks may be the first places that come to mind, credit unions offer an alternative. Credit unions offer many of the same tools as banks, like loans, checking and savings accounts, and credit cards. However, unlike banks, credit unions are not-for-profit. Understanding what that difference means in practice could help you make the best choice for you and your family.

What is a credit union?

A credit union is a not-for-profit organization that provides financial products and services. Two big traits set credit unions apart from more traditional banks, according to the National Credit Union Administration (NCUA). Credit unions are not-for-profit and member-owned. Their not-for-profit status excuses them from many taxes.

With the profits they make, credit unions typically focus on offering members good rates and reduced fees. That means a credit union’s profits go toward member perks like the best credit card and loan rates possible, lower fees, and higher yields from savings accounts. Members could also make decisions like electing board members.

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Typically, you have to be a member of a credit union to use its services. Some credit unions only accept members from specific groups. Others serve a given region. There are even low-income credit unions (LICU), the NCUA explains. LICUs offer loans, savings accounts, and education to people with bad credit and limited resources.

NCUA insures deposits at all federal credit unions and most others. Typically, the insurance amount is $250,000 per account owner, per bank, in each account ownership category. Funds that you deposit in your account should be safe even if your credit union shuts down.

Advantages and disadvantages of a credit union

Because credit unions don’t have to boost profits, they may provide the following unique advantages:

  • Lower fees: Credit unions often charge lower and fewer fees than traditional banks.
  • Better rates: Credit unions typically offer low interest rates on loans or credit cards. Likewise, savings accounts may have higher interest rates. 
  • Personal service: Credit unions often offer attentive service. They focus on your unique needs.

Keep in mind that credit unions aren’t without drawbacks. Consider the following limitations:

  • Membership requirements: You may have to be a member of a particular group or live in a specific region to join a credit union. 
  • Fewer online tools: Credit unions may not offer as many mobile or online tools as traditional banks. Some credit unions have online and mobile banking. Still, it’s not always as functional or comprehensive.
  • Basic financial products: You may not be able to find a specialized financial tool at a credit union. They’re better suited for basic banking and saving needs.

What is a bank?

A bank is a financial institution offering products and services, like personal loans, mortgages, savings accounts, credit cards, and more. Banks, unlike credit unions, are for-profit businesses. They pay taxes and aspire to make a profit each year.

The people who use a traditional bank don’t own it. Instead, most major banks are publicly traded. That means stakeholders, like investors, have ownership in the bank. Banks may also have private owners. Stakeholders and private owners benefit when a bank profits. Customers’ interest charges and fees go toward a traditional bank’s revenue, so they may be higher compared to credit unions. However, some online banks still offer competitive rates on loans and savings accounts.

The Federal Deposit Insurance Corporation (FDIC) insures deposits at traditional banks. Like the NCUA, the FDIC covers $250,000 per person, per account category, per bank. If your bank fails, your money should remain secure.

Advantages and disadvantages of a bank

The scale and resources of many traditional banks come with the following advantages:

  • Widespread availability: Banks often have more brick-and-mortar locations and ATMs than credit unions. That makes it easier to deposit, withdraw, and manage money on the go.
  • Range of products: Banks often provide many types of financial products and services, including investment accounts and financial advising.
  • Advanced mobile and online services: Many major banks offer extensive online and mobile services.

Depending on your needs, banks may also have some drawbacks compared to credit unions:

  • Added fees: Banks may charge fees for opening and managing new accounts. These may be higher fees than you’d find at a credit union of a similar size.
  • Higher interest rates on loans: Loans from banks often have higher interest rates than loans from credit unions.
  • Lower interest rates on savings accounts: Savings accounts at larger traditional banks may not earn as much interest as similar accounts at credit unions.

Did you know?

Some traditional banks offer competitive services and rewards, without charging fees. For instance, with Discover, you can find cash back and Miles rewards on your everyday credit card purchases, all with no annual fee to use the card. Compare and apply for the best credit card for you.

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Is a credit union or bank right for you?

Credit unions and banks offer many of the same services. However, they have different values, strengths, and weaknesses. The best fit for you depends on your needs and priorities.

You may consider banking with a credit union if you want lower loan rates, higher savings rates, and more personalized service. On the other hand, if you need more specialized investment products or access to your bank in many locations, a traditional bank may better meet your needs.

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