Banks vs. Credit Unions

Which Is Best for Your Money?

Check Remote Deposit Capture at Cafe
••• Most banks and credit unions offer similar services and technology (including mobile check deposits). RyanJLane / Getty Images

Banks and credit unions offer similar products, and your money is safe in both types of institutions. So, is there any difference between a bank and a credit union, and do those differences really matter to you?

We’ll dig into the details below, but as a brief overview:

  • Similarities: Banks and credit unions both offer checking and savings accounts, loans, business accounts, and other services. For most banking needs, they are equivalent.
  • Differences: Credit unions are customer-owned institutions, while banks are typically for-profit businesses. In some cases, that gives credit unions an advantage. But to join a credit union, you need to qualify by meeting membership criteria.

For a basic introduction to credit unions, including ownership, the safety of your funds, and products, see How Credit Unions Work.

Ownership: The Primary Difference

Credit unions are owned by their customers, who are also known as “members.” Investors own banks. Those investors might be thousands of anonymous stockholders or a few large investors, depending on the bank. You might not care or think it’s a big deal, but the ownership structure affects how these institutions operate.

The credit union ideal: Ideally, credit unions can offer better deals because they don’t have outside investors trying to maximize and increase profits at the expense of customers. Many credit unions do just that: They pay more interest on savings and CDs, they offer free checking to everybody, and they keep loan rates low.

Exceptions to the rule: However, credit unions aren’t always more affordable than banks. Community banks have priorities that are similar to credit unions, including serving local populations and giving back to the community.

What’s more, some credit unions act like big banks and charge the same high fees as their competitors. As not-for-profit organizations, those credit unions enjoy tax benefits that do not come back to the members as intended.

Credit Union Eligibility

Your ability to open an account is another significant difference between banks and credit unions.

To keep their tax-favored status, credit unions are required to limit their customer base to a group of people who share a common bond (known as the “field of membership”).

That requirement is relatively easy to meet. You may be eligible to join a credit union because of:

  • Where you work or the industry you work in
  • Where you attend school or worship
  • The geographic area you live in
  • Membership in an organization, which you may be able to satisfy online
  • A family member’s eligibility

Wherever you are, there’s a good chance that there’s a credit union nearby that you’re eligible for. Some credit unions even serve members remotely or entirely online.

Is Your Money Safe?

Banks and credit unions can both keep your money safe. If an institution goes under, some or all of your money may be insured, meaning your funds should be replaced. In most cases, your account ends up at a new institution, and you have the same account number and account balance as before.

The safest insurance available comes from the U.S. government.

Under current law, both FDIC and NCUSIF coverage protect up to $250,000 per depositor per institution. If you have more than that, you need to make sure to spread your funds among different account registrations or different institutions. It is possible to have more than $250,000 insured in one place. For example, your retirement account and your individual checking account at the same institution might be counted separately.

Some credit unions are state-chartered (instead of federally-chartered), and they offer private insurance coverage. While this protection is helpful in many cases (they're not necessarily bad institutions), private insurance is not nearly as safe as NCUSIF coverage.

Similar Product Offerings

The products available at banks and credit unions are virtually the same. For most—consumers handling personal finances and small businesses—it doesn’t matter whether you use a bank or a credit union.

For specialized services, such as trustee services, a small credit union might not be able to accommodate your needs. But it never hurts to ask—even small institutions have partnerships with service providers that can provide seamless services through a credit union.

Almost any bank or credit union offers the following products:

Technology: Both banks and credit unions offer online banking services and mobile apps. You can view accounts, make deposits with your mobile device, move money between accounts, pay bills, and more at most institutions. Occasionally, a small credit union might not offer all of the features you’re looking for, but that’s rare.

Customer Service

Banks and credit unions can both offer excellent customer service. They both also make mistakes and employ people who occasionally have a bad day.

Relationships: At credit unions and small banks, service tends to be more personalized. With fewer customers and employees, it may be easier for everybody to get to know each other. If you visit a branch, there’s a good chance you’ll work with the same people, and you may develop relationships. Those relationships can potentially help you qualify for loans if you have less-than-perfect credit, and they may make it easier to solve problems in your accounts.

Especially at small banks and credit unions, the customer service depends (in part) on the culture of the organization. Interactions may be more informal (for better or worse), and may depend on who you’re talking to that day. At large banks, expect a more consistent (but rigid) experience: All employees go through the same training program, and they have little leeway when it comes to service issues.

Your schedule may affect your decision to work with a bank or credit union. Large banks have more resources to offer 24-hour customer service lines, and that may be helpful if you can’t talk during business hours. However, some credit unions (and banks) offer extended and weekend hours—as well as excellent websites. If you can do everything you need online, banking hours don’t matter.

Credit unions provide a unique offering with shared branching. If your credit union participates, you may be able to visit branches of other participating credit unions nationwide. Most services, like deposits and withdrawals, are available for free, but you may need to work with your “home” credit union on more complex issues.

Which Is Better?

Banks and credit unions can both provide robust financial services. Ultimately, it comes down to the products, services, and fees offered by the individual institution you're looking at. If ownership is not important to you, just go with whoever has the best deal (and remember that you can keep multiple accounts open at both banks and credit unions).

When you need a loan, get quotes from several different sources, including at least one bank, one credit union, and one online lender. Compare the costs and interest rates at each institution, and ask whether or not you’re likely to get approved for the loan before you fill out an application.

If high rates on savings accounts are your main priority, look at online-only options for both banks and credit unions. Online banks don’t have the same overhead as brick-and-mortar institutions, and they tend to use eye-popping interest rates to get attention.

If you decide to switch to a different bank or credit union, avoid problems when you move your money. Use our checklist for switching banks to make the process as painless as possible.