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Credit Union vs. Bank: What's the Difference?

Updated
Kailey Hagen
Cole Tretheway
By: Kailey Hagen and Cole Tretheway

Our Banking Experts

Eric McWhinnie
Check IconFact Checked Eric McWhinnie
Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield

When shopping around "best of" lists, you might find credit union accounts next to bank accounts. What gives? Bottom line, they offer similar services. You can meet your banking needs at a bank or a credit union. But there are key differences.

If you can bank with a credit union, check out its perks first. Credit unions offer personable and community-first services, plus market-beating rates. Once you've done that, compare credit union features to those banks offer. You may be pleasantly surprised -- banks, especially online banks, have become competitive with credit unions in many ways.

Read on to compare the pros and cons of a credit union vs. bank with confidence.

What is a credit union?

A credit union is similar to a bank in many ways, but credit unions are nonprofit institutions. Because they're nonprofit, credit unions can usually offer market-beating rates on savings and checking accounts, mortgages, loans, and sometimes even credit cards.

Credit unions are usually designed to serve the financial needs of communities:

  • Residents of specific regions
  • Members of certain faiths
  • Employees of certain organizations
  • Other groups

What is a bank?

A bank is an institution where you can deposit savings and take out loans. Banks are often seen as a convenient and secure way to store money, and some account types also earn interest. Most banks have both online and in-person services.

Banks are for-profit organizations. At a bank, you can open checking and savings accounts, loans, credit cards, or other products. Almost anyone can join a bank.

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How do credit unions and banks differ?

The key difference between a credit union vs. bank is that credit unions are nonprofits while banks are for-profit institutions. As a result, credit unions can offer lower loan rates and higher savings rates. However, credit unions tend to be smaller than national banks.

Also, credit unions usually have membership requirements, but these aren't hard to meet. Banks, on the other hand, serve just about anyone. Banks are often less flexible because they must serve diverse customer bases.

Pros and cons: Credit union vs. banks

Credit unions compete with banks for customers, but there is more than meets the eye. Online banks now offer rates competitive with credit unions, and they offer different perks than legacy brick-and-mortar institutions. Here's an overview of how credit unions, brick-and-mortar banks, and online banks compare.

Credit Unions Brick-and-Mortar Banks Online Banks
Primary Goal Service members Make profit Make profit
Interest rates Usually better Typically lower Often the best
Fees Lower fees Higher fees Lowest fees
Services Basic Wide range Usually limited
Customer Service Personalized Varies Mainly online/phone
Branch Availability Limited Extensive None
ATM Network Limited but often in networks Extensive Usually reimburse fees
Tech Features Basic Good Excellent
Regulation & Insurance NCUA, similar to FDIC FDIC FDIC

Credit union vs. banks: How do the financial services compare?

Personal loans

When shopping for a personal loan, there are two key factors that distinguish a credit union vs. bank.

First is the rates. As discussed above, you may be able to score a better rate with a credit union than with a traditional bank. This could save you hundreds or even thousands of dollars over the lifetime of your loan.

Credit unions may also have more lenient eligibility requirements. That means you could secure a personal loan from a credit union even when a bank might turn you away. They're worth considering if you have fair or poor credit.

Many online banks and lending institutions offer personal loan rates competitive with credit unions. But if eligible, you should check the rates offered by your credit union. Review websites might fail to fully consider the perks of credit unions, which tend to be exclusive.

Credit cards

You're more likely to find credit cards with banks than you are with credit unions, but some credit unions do offer them. Credit union credit cards may charge lower interest rates, but otherwise, they're the same as bank credit cards. Requirements for approval are often less stringent, though you must be a member of the credit union.

Mortgages

Choosing a credit union vs. bank for a mortgage involves many of the same considerations as any other type of loan. You may be able to score a better rate and have an easier time getting approved for a mortgage with a credit union than you can with a bank. But you have to be willing to accept more dated online services, which can make managing your account more of a hassle.

Which is better to have in a recession?

History shows that when it comes to a credit union vs. bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money. Both credit unions and banks have deposit insurance and are generally safe places for your money.

What is right for you: a bank or credit union?

Shop around. Best advice, compare credit unions like you would banks. They're not the same, but you ultimately use them for the same purpose: to meet your banking needs.

When a credit union is a better choice than a bank:

Credit unions typically offer better rates to members than brick-and-mortar banks. They also tailor products to their communities, and customer service is sometimes better. Credit unions may provide better or more loan options to members with fair or poor credit.

When a bank is a better choice than a credit union:

Banks typically offer convenient online access and advanced technology compared to credit unions. Online banks may provide members with rates competitive with credit unions. Brick-and-mortar banks offer the most branches, ATMs, and nonessential banking services.

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FAQs

  • Brick-and-mortar banks offer worse rates than credit unions, but the big ones have many physical branches you can walk into. They make in-person banking doable and have some of the biggest ATM networks out there. They may offer nonessential banking products like credit cards -- you may be able to manage all your monetary needs at one traditional bank.

  • Generally speaking, online banks offer the best rates on deposit accounts -- they're cheaper to operate, and banks pass savings onto customers. If you're technologically savvy and top-tier interest rates are your priority, online banks are your bread and butter.

Our Banking Experts