At a Glance

Banks and credit unions are both types of financial institutions that offer financial products and services, like savings/checking accounts and loans. They both serve both individuals and businesses, and are subject to similar laws and regulations offering protections to their consumers.

However, that’s about where the similarities end. There are fundamental differences in what they offer, how they operate, and who they serve.

In this article, you’ll learn:

Key differences between credit unions and banks

Banks Credit Unions
Profit For-profit; Banks pay taxes on the profits they earn, and many are publicly traded with paid board members. Not-for-profit; Generally exempt from federal taxes and some receive subsidies from organizations that sponsor them

 

Often return profits to members in ways like charging less interest on loans, lower fees, and higher rates on savings accounts
Membership Does business with any consumer who doesn’t have a history of banking problems Must be an eligible member; members share a common bond such as working in the same industry, being part of the same religious institution, living in the same community, etc.
Interest rates Higher interest rates on loan products.

 

Lower interest rates on savings accounts.

 Lower interest rates on loan products, even for borrowers with lower credit scores.

 

Higher interest rates on savings accounts.
Fees Often charge higher and greater number of fees.

 

Larger minimum balances.

 Fewer and lower fees.

 

May have no minimum balance requirements.
Services Stricter loan requirements.

 

More general services, such as greater variety of loan and financial services.

 More personalized service, such as leniency with loan approvals, financial education and outreach, and more.

 

May not offer as many products as commercial banks.
Branches Greater number of branches and ATMs nationwide. Limited number of branches and ATMs; may be regional.
Technology Typically have more advanced technology, including more online banking opportunities. Some larger credit unions have advanced technology, but smaller credit unions typically do not.

Pros and cons of banks

Pros Cons
Better online apps, tools, and website features Higher fees
Larger ATM network/convenient locations Lower savings account rates
May have a greater variety of financial products and resources Higher interest rates on loan products
Stricter loan product requirements
Higher balance requirements

Because banks are for-profit and larger financial institutions, they often have a larger ATM network and more, more convenient locations available for in-person banking. They also typically have a greater variety of financial products and resources, including loans and investment opportunities. Finally, they often have more advanced technology and better online resources including mobile applications and website features.

On the other hand, banks also typically have higher fees and interest rates on loan products, but lower rates for savings accounts. They often have higher balance requirements for savings accounts, and stricter loan product requirements. For example, they may not accept a loan application for someone with poor credit.

Pros and cons of credit unions

Pros Cons
Personalized customer service Must meet membership requirements
Financial literacy resources and education Fewer locations/ATMs
Free checking accounts Mobile and online banking technology less advanced
Lower/no fees May have fewer financial services/products available
Higher savings interest rates
Lower interest rates on loan products
More flexibility/leniency with loan product applications

Credit unions require you to meet certain membership requirements to become a member, such as living in a certain place, being employed by a certain employer, or others. They also are often smaller, so they have fewer locations and ATMs and their online and mobile banking technology isn’t as advanced.

However, their smaller size and not-for-profit status allows them to provide more personalized customer service, lower/no fees, higher savings account interest rates, and lower interest rates for loan products. They also can provide more flexibility with loan requirements, and may be able to offer loans to borrowers with less-than-ideal credit.

How are banks and credit unions similar?

Despite the variety of differences, there are also some similarities between banks and credit unions. Both:

  • Offer savings accounts and checking accounts, and a variety of other financial products such as personal loans, auto loans, and mortgages.
  • Offer financial services for individuals and usually for businesses as well.
  • Are insured by the federal government, up to $250,000.
  • Are subject to similar laws and regulations regarding loans and safety.

Are credit unions safer than banks?

Both banks and credit unions are safe. First, both are federally insured, meaning the federal government requires financial institutions to pay back any money stolen from your account. FDIC banks and NCUA credit unions are both backed and protect up to $250,000 per depositor, per bank or credit union, per ownership category.

Additionally, if your PIN or debit card is stolen and someone takes out or spends money from your account, there are guidelines about how much you get back (typically depending on how soon you report the theft).

Is it right to take a loan from a bank or credit union?

Typically, both banks and credit unions offer a variety of loan products. You can choose a loan product from either a bank or credit union based on your needs.

For example, banks may have stricter requirements and higher interest rates, but they may offer a greater variety of products. Credit unions are less strict when it comes to requirements and they consider additional factors other than your credit score. Their interest rates are also typically lower, but they may have lower loan amounts available than at banks.

Keep in mind that you must be a member of a credit union to even get access to apply to one of their loan products.

Other factors to consider while choosing a bank or credit union

Some questions to ask when deciding between a bank and credit union include:

  • Does it offer the online technology you want?
  • Is it part of an ATM network? Are the locations convenient?
  • What are the fees?
  • What are the interest rates on loan products? What are the requirements? How strict or lenient are those requirements?
  • What are the interest rates on the savings products? What other investment options does it have?
  • What are the customer service reviews? Do the hours work with your schedule?

FAQs

Disadvantages of a credit union include you must meet membership requirements to join. Additionally, most have fewer locations (or the locations are regional) and fewer ATM locations. Smaller credit unions may not offer as many financial products and their technology may not be as advanced as banks.

A bank may be better than a credit union because it may have more, more convenient locations and ATMs. There are no membership requirements, and they typically have more advanced technology and online banking. Additionally, they may offer more loan products and financial services than some credit unions.

Credit unions are typically a safe place to keep your money or apply for a loan product. These not-for-profit institutions are owned by their members and focused on their community. While credit unions can fail, just as banks, it’s rare. Additionally, deposits up to $250,000 at federally insured credit unions are guaranteed just as at banks.

Applying for membership at a credit union does not impact your credit score. However, applying for a loan product or credit card might. Additionally, it’s important to make your payments on time each month and keep your debt-to-income ratio low; otherwise, your credit score could suffer just as with a credit card or loan from another type of financial institution.

Your money isn’t necessarily safer with a credit union vs. a bank, or vice versa. If federally insured, your funds are protected (up to $250,000). Additionally, most offer reimbursement options should your debit card or PIN get stolen and money removed from your account. That said, credit unions serve their members and small businesses (vs. large investors), so they are less likely to take large risks.