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

When thinking about where to keep your money, a bank probably springs to mind. But it's definitely worth weighing the value of a credit union vs. bank before making any decisions. A bank is not your only option -- and it may not always be your best option. Credit unions are smaller and they offer some unique advantages. In this article, we'll go over what credit unions are and how to know whether one is a good fit for you.

What is a credit union?

A credit union is similar to a bank in many ways -- but credit unions are smaller, non-profit institutions.

Because they're non-profit, credit unions can usually offer better rates on these products than a bank:

• Savings accounts
• Checking accounts
• Mortgages
• Loans
• Credit cards (sometimes)

An example of a popular credit union is Alliant Credit Union. On the other hand, a popular bank is Bank of America. Below, you can compare their savings account rates:

Credit unions are usually designed to serve the financial needs of a particular community, such as:

• Residents of a specific region
• Members of a certain faith
• Employees of a certain organization
• Other groups

They usually have eligibility requirements, but they aren't difficult to achieve. Banks, on the other hand, serve just about anyone.

Why people love credit unions:

• Emphasis on customer service
• Higher APYs on savings products
• Lower interest rates on loans
• Deposits insured by the National Credit Union Administration (NCUA)

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.

Pros and cons: Credit union vs. banks

Here's a closer look at some of the pros and cons of a credit union vs. bank so you can decide which is right for you.

Credit union vs. banks: 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.

Credit union vs. banks: Credit cards

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

Credit union vs. banks: 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 a little more of a hassle.

Credit union vs. banks: 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. While both can be hit hard by tough economic conditions, 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: Credit union or bank?

There are many factors to keep in mind when comparing a credit union vs. bank. Ultimately, it's a personal choice. Some people may be willing to accept less favorable rates in exchange for banks' larger networks and more advanced online tools. Others may be willing to put up with the lack of a mobile app in exchange for better customer service and less stringent loan requirements.

When it comes to credit union vs. banks, compare all your options before deciding what's best for you. And don't be afraid to think outside the box. Some small, regional banks may give you great rates and customer service while offering better online tools than credit unions. And online banks are known for having some of the best rates and online tools around, though they have no branches at all. Think about what matters most to you in a financial institution when making your decision.

Still have questions?

Here are some other questions we've answered:

• What is FDIC insurance?
• Checking account vs. savings account: Which should you pick?
• What is APY?