What Is the Difference Between a Bank and a Credit Union?

The difference between banks and credit unions comes down to structure and product offerings. Banks are for-profit institutions that offer a wide variety of offerings and services that are convenient and easily accessible.

Credit unions, on the other hand, are member-owned nonprofit organizations that typically boast more personalized customer service and lower fees and loan interest rates. However, they may offer fewer services and physical locations.

Institution Structure

The biggest difference between banks and credit unions lies in the fundamentals of the way they’re structured.

Advantages of a bank

Banks are for-profit companies and usually part of a larger nationwide organization. This means they may have more locations and be standardized and consistent across all of them. They also offer a greater variety of financial products and services, and in some cases, a more polished online experience.

Advantages of a credit union

Credit unions are nonprofit cooperative financial institutions that are owned and controlled by their members. A credit union is democratically governed and volunteer-based. Each member has one vote, and members elect the board of directors.

Membership Requirements

The second thing to consider when comparing banks to credit unions is their membership requirements. Whether you’re making a minimum required deposit for a bank or purchasing membership shares for a credit union, it likely costs something to get started at both of these types of institutions.

Advantages of a bank

Anyone can become a bank customer — no membership required. Many online banks don’t even require a minimum initial deposit, but watch out for minimum balance requirements to avoid fees. While credit unions typically only serve people who live in certain geographic locations and require that you qualify to become a member, banks serve anyone and typically have multiple locations nationwide.

Advantages of a credit union

Credit unions require membership, but it’s relatively inexpensive to buy in. The average cost to purchase a credit union share is $5–$10 and typically just a few shares are required for you to open an account. Those shares are then deposited in your savings account. If a credit union requires you to purchase at least five shares at $5 each to become a member, that means you need to make an initial $25 deposit that will then remain in your account as long as you are a member.

Personalization

Your experience at a bank versus a credit union will likely be very different. While credit unions emphasize service and financial education, banks prioritize a streamlined and convenient experience.

Advantages of a bank

If having access to a branch in multiple locations is your priority, you may be better off at a large bank. While the service is often less personalized, it’s often due to a thorough, standardized training that you might not get from employees at a credit union. A bank’s wide variety of loans, cards, and services may fit your needs better than a credit union.

Advantages of a credit union

Credit unions offer financial education and counseling. They focus more on service and less on profitability. A 2017 report showed that credit union customers had a higher satisfaction than bank customers.

Rates and Fees

When researching banks and credit unions, it’s important to shop around for the best deal. No one wants to pay fees or unnecessarily high interest rates if they don’t have to.

Advantages of a bank

You’ll typically find higher fees and be paid lower interest rates on deposits at banks. However, many find this worth the cost, due to the variety of services and convenience offered at banks.

Advantages of a credit union

The profits credit unions make are passed onto members in the form of dividends or lower fees. That is why credit unions typically offer higher rates on savings, lower fees and lower rates on loans than banks.

Product Offerings

You’ll typically find more product offerings at a bank than you would at a credit union, partially due to the fact that credit unions are generally smaller with fewer employees.

Advantages of a bank

Banks typically have more locations nationwide than credit unions. They’re also quicker to adopt the latest apps and technology than credit unions are, making banking more convenient. They also offer products that you can’t find at credit unions — namely, commercial loans.

Advantages of a credit union

Credit unions tend to offer fewer products, but they make up for it in customer service. Credit unions work with you to decide what’s best for your financial needs.

Deposit Insurance

Both banks and credit unions insure deposits up to $250,000 per account. The difference lies in the insurer.

Advantages of a bank

The Federal Deposit Insurance Corporation (FDIC) insures checking accounts, savings accounts, money market accounts and certificates of deposit at banks. No one has ever lost money that was FDIC-insured.

Advantages of a credit union

Over 98% of credit unions in the United States are insured by the National Credit Union Administration (NCUA) under the umbrella of the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF is backed by the “full faith and credit of the United States” and, similar to the FDIC, ensures credit union members don’t lose insured savings.

Similarities Between Banks and Credit Unions

Despite all the differences, banks and credit unions share some similarities in their core product offerings and features, including the following:

• Auto, home and small business loans
• Checking and savings accounts
• Money market accounts
• Overdraft protection
• Direct deposit
• Mobile banking
• ATMs

The Bottom Line: Compare Before You Sign Up

When comparing banks to credit unions, consider the features below to find the institution that best fits your financial needs:

• Products: Find out what products and services each institution offers. Generally, banks offer a more varied selection of financial products and services than credit unions.
• Fees: What fees and penalties, if any, can the credit union charge? How do these compare to the bank’s?
• Interest rates: Find out how much interest you will gain on your savings account. Both banks and credit unions offer checking accounts and savings accounts, though you may find higher rates at credit unions.
• Loan rates: Do you need to borrow? Loan rates tend to be lower at credit unions, though banks may offer a wider range of loans.

No matter which financial institution you partner with, make sure to consider your future and the long-term benefits of each. Remember to prioritize what’s important to you — from boosting your credit score to building your savings — and choose the institution you believe will ultimately help you achieve your financial goals.

Sources: Statista | FDIC | ACSI