Published in: Banks | March 6, 2019
Credit Union vs. Bank: Which Is Better for You?
By: Christy Bieber
Should you do your banking with a credit union or would a traditional bank be better? Here's how to decide.
In managing your financial life, you have many decisions to make about what companies you want to do business with. You'll need to decide which financial institutions to trust with your money when you open a checking and savings account. And, you'll need to decide where to turn when you want a mortgage loan, personal loan, auto loan, or other type of financing.
As you explore your options, there's two major types of financial institutions that could provide the services you're looking for: banks and credit unions. While both banks and credit unions offer similar services -- including checking and savings accounts -- there are big differences between them you need to understand when deciding which is best.
To find out what you need to know to determine who should hold your money and who you should borrow from, read on.
Banks vs. credit unions
Banks and credit unions differ in lots of different ways, but the big fundamental difference between them is how they're structured.
Banks are usually privately owned or owned by investors. Their purpose is to make a profit for shareholders. Credit unions, on the other hand, are owned by members who do their banking with the credit union. They're not-for-profits, so their purpose isn't to earn as much money as they can for their owners. Instead, the goal of every credit union is to serve its customers.
Because credit unions don't try to earn a profit, don't pay taxes on profits, and answer to the members who bank with them, credit unions tend to have much more emphasis on customer service. They typically also pay higher interest rates on interest-bearing checking and savings accounts and charge lower interest rates on loans.
While all of this sounds good, that doesn't mean credit unions have no downsides. They're often smaller than big national banks, so it may not be as easy to find a branch near you if you need in-person support -- especially if you're traveling.
Because they're often smaller in size than banks, credit unions may also not have the same technologies as big banks do. That means features on your mobile and computer app may lag behind what you'd get if you worked with a bank instead. And, they may not offer as many different kinds of financial products as banks.
Of course, there's variation among banks and credit unions. Some national credit unions are larger than some small local banks -- and there are some credit unions with a nationwide presence that offer most or all of the services that big banks do. That variation makes it important to carefully assess each specific credit union or bank you're considering to compare the features and terms of that particular financial institution.
You'll need to be a member of a credit union
There's another fundamental difference between banks and credit unions that can make credit unions less attractive: credit unions require you to be a member.
The member-owned structure of credit unions gives members power to choose who is on the board of the credit union and how decisions are made. It's also the reason credit unions typically have a better reputation for customer service than most banks. But, credit unions are built around the principle that their members will also share a common bond or common association.
That means every credit union has certain requirements you have to meet in order to become a member and hold accounts with that union. Membership rules vary, but you may have to live in a particular geographic area; have a military member in your family; be a member of a particular labor union; work in a certain profession; or meet other specific criteria set by the credit union you're interested in joining.
While some credit unions allow you to join just by paying to become part of a particular group or organization, finding these credit unions can be a challenge. If you don't want to deal with the hassle of searching for a credit union that will allow you to join, you may be better off choosing a bank that will let anyone become a customer.
Small local banks can provide many of the same perks as credit unions in terms of better rates and a more responsive customer service staff -- and you won't need to worry about whether you meet membership criteria when you try to open an account.
Is a bank or a credit union better for you?
Ultimately, only you can decide if a bank or credit union is right for you. You may want to choose a bank if:
- You don't want to worry about meeting membership requirements for a credit union
- You'd prefer a larger financial institution that offers more products, more services, or more advanced technologies
- You want a financial institution with the maximum number of branches or ATMs nationwide
And, you may want to choose a credit union if:
- Customer service is one of your key concerns
- You're focused on earning a higher interest rate, paying less in interest, or qualifying for loans more easily
- You want to be a member of the credit union and to have more control over how your financial institution operates
Do your research before you decide
In addition to looking at these big picture traits of credit unions vs. banks, you also need to look at what each particular financial institution you're considering is offering.
This means looking at the specific interest rate, minimum balance requirements, fees, and other details about the account you're looking to open or the loan you're hoping to take out.
Remember, you aren't just choosing a credit union or bank -- you're choosing a particular financial product with that institution. You need to know who will offer you the best terms for your savings account, checking account, loans, or other accounts you're hoping to open. Only with careful research can you find the best bank or credit union to do business with.
Savings account rates are skyrocketing -- Earn 20x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 20x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2020.