Bank vs. Credit Union
Which is Best for Your Money?
You’ve got several choices for financial services like savings accounts, checking accounts, and loans. Both banks and credit unions offer these products, and it’s often hard to spot the difference between these institutions. In many ways, they’re equivalent — and one might not be any better than the other. But there are some important differences between banks and credit unions, which we’ll describe below.
For a basic introduction to credit unions, including ownership, safety of your funds, and products, see How Credit Unions Work.
The Main Difference: Ownership
Credit unions are owned by their customers, while banks are owned by investors (those investors might be thousands of stockholders or a few large investors). You might not care, or think it’s a big deal, but that 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 their local population 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, these credit unions enjoy tax benefits that do not come back to the membership as intended.
Credit Union Eligibility
Your ability to open an account is another major 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.
Is Your Money Safe?
Banks and credit unions both keep your money safe. If the institution goes under, some or all of your money may be insured, which means your funds would be replaced. In most cases, your account would end up at a new institution, and you’d have the same account number and account balance.
The safest insurance is backed by the U.S. government.
- For bank accounts, the FDIC insures funds with a government backing.
- At federally-insured credit unions, NCUSIF coverage protects you with the full faith and credit of 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’ll want to make sure that you spread your funds among different account registrations (for example, your retirement account and your individual checking account) or among different institutions. It is possible to have more than $250,000 insured in one place.
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 of us — consumers handling personal finances — 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 relationships with service providers that may be able to help.
Almost any bank or credit union offers the following products:
- Business bank accounts
- Checking accounts
- Savings accounts
- Certificates of deposit (CDs)
- Home loans (including purchase loans and refinancing)
- Auto loans for new or used vehicles (including motorcycle and RV loans)
- Money market accounts
In addition, both banks and credit unions offer online banking services. You can view accounts, make deposits with your mobile device, move money, 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.
Banks and credit unions can both offer great customer service. They can also make mistakes and employ people who are having a bad day.
At credit unions, service tends to be more personalized. There are fewer customers and fewer employees, so it’s 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 will be based (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 may have the 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, hours might not matter.
Credit unions have 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 making 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 meet your needs. 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 at both banks and credit unions).
When you need a loan, get a quote 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’ve decided to start using a different bank or credit union, move your money without causing problems. Use our checklist for switching banks to make the process as painless as possible.