Banking » Guides » Credit Unions vs. Banks: Which Is Better For You?
Advertiser Disclosure

This website is an independent, advertising-supported comparison service. The product offers that appear on this site are from companies from which this website receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This website does not include all card companies or all card offers available in the marketplace. This website may use other proprietary factors to impact card offer listings on the website such as consumer selection or the likelihood of the applicant’s credit approval.

This allows us to maintain a full-time, editorial staff and work with finance experts you know and trust. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impacts any of the editorial content on The Smart Investor. While we work hard to provide accurate and up to date information that we think you will find relevant, The Smart Investor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof.

Learn more about how we review products and read our advertiser disclosure for how we make money. All products are presented without warranty.

Credit Unions vs. Banks: Which Is Better For You?

From the way they present their products and services, you may not be able to see the difference between a commercial bank and a credit union. But in many aspects, they’re miles apart. 
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor, which helps consumers make better financial decisions.  Silvermann’s areas of expertise include investing, banking, and credit cards. Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more. Aside from being a finance expert, his background includes working as a business and financial analyst. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor, which helps consumers make better financial decisions.  Silvermann’s areas of expertise include investing, banking, and credit cards. Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more. Aside from being a finance expert, his background includes working as a business and financial analyst. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

We earn a commission from our partner links on this page. It doesn't affect the integrity of our unbiased, independent editorial staff. Transparency is a core value for us, read our advertiser disclosure and how we make money.

Table Of Content

Unlike banks, credit unions are non-profit financial institutions with authority to do the financial transactions that most banks do. You can open a standard savings and checking account, a certificate of deposit, and a money market account. If you need a loan, you can secure a mortgage, home equity loan, personal loan, and auto loan from your credit union.

Credit unions can provide lower rates compared to banks because of their not-for-profit cooperative nature. So, instead of giving the profits to stockholders, credit unions return the earnings to their members by way of dividends and enhanced services.

According to Cuna Mutual Group, there has been a gradual increase in the membership of credit unions in the United States from 2013 to 2020. Since 2013, the membership of credit unions has increased from 98 million to 127 million, which is an increase of 29 million members. On average, the membership grew by 4 to 5 million each year.

The Similarities Between Banks And Credit Unions

It can be difficult to differentiate a credit union from a bank by the way they do their business.

While banks offer a more extensive set of financial products, credit unions aim to offer the same financial services.  each credit union is unique in several ways, so even the products it offers may not be the same as the others.  The big credit unions can offer a wider variety of products and services, but the small ones might stick to the essential products.

Here are some products and services you can find in a credit union, and a lot of them will also be available at your local banks:

  • Savings, checking and ATM accounts
  • Money market and IRA accounts
  • Credit cards
  • Personal loans (both secured and unsecured)
  • Home mortgages and home equity loans
  • Auto and recreational vehicle loans
  • Traveler's cheques, money orders, certified checks, and foreign currency exchange

Differences Between Banks And Credit Unions

Knowing these key differences will help you understand which works best for your needs – a bank or a credit union.

A credit union’s owners are its members with deposit accounts at the organization. Technically, a credit union is a financial cooperative. A credit union exists basically for its members’ benefit.

All depositors are owners, and there is no distinction whether you have $100 or $10,000 – when it’s time to elect the board, your being a member still entitles you to just one vote.

On the other hand, a commercial bank exists to generate profits for its shareholders, so traders often buy and sell their stocks in the stock market. The people who own these banks are there primarily to earn from their investments.

Credit unions cannot be as competitive as banks in terms of the financial services that they offer because of their limited income and geographic presence.  Normally, they will have fewer ATMs for their depositors and a very basic online banking facility, if at all.  Without the IT resources that banks have, credit unions can’t put too many funds into maintaining a sophisticated website and account portals.

Because of their nature, credit unions will also have limited physical branches.  This is almost a given because credit unions are there to serve smaller communities or groups.  So, if you’re traveling and then find yourself in need of your credit union’s service (like maybe an ATM), you may be in for a bit of tough luck.

Largest Traditional Banks
Largest Online Banks
Largest Credit Unions
Chase Bank
American Express
Navy Federal Credit Union
Wells Fargo
Marcus
State Employees Credit Union
Bank Of America
Capital One
BECU
Citi Bank
Synchrony Bank
PenFed Credit Union
PNC Bank
Discover Bank
SchoolsFirst Federal Credit Union
U.S. Bank
Ally Bank
Alliant Credit Union

Your ability to open an account is a very significant difference between a credit union and a bank.  While you may find it easy to just walk into a bank and open an account, that is not always the case with a credit union.

To keep their tax-favored status, the law requires credit unions to limit their customer base to a group of people who all share a common distinction.  The law calls this the “field of membership.” If you meet that common bond, it’s easy to meet the credit union’s requirement.  You may be able to join a credit union based on the following:

  • The specific work you do or the type of industry you work in
  • The school you go to/went to or the church where you belong
  • The community or geographic area you live in
  • Your membership in an organization (you can join online to most of them)
  • A family member’s eligibility for the credit union

That said, there are credit unions with more straightforward eligibility terms.

Safety will often come up as an issue when people choose between a bank and a credit union.  Many people are not aware that most credit unions carry federal insurance, the backing of the NCUSIF and the U.S. government.  Banks rely on the FDIC, which is another government agency, for their deposit insurance.

Under current laws, both the FDIC and the NCUSIF protect up to $250,000 per depositor.  To have additional protection, if your money will exceed the coverage, it may be wise to put the excess in a different account or in a different institution altogether.

What we’re saying is, your money will have some sort of protection whether you put it in a bank or a credit union.

Banks and credit union deposit insurance difference
both the FDIC and the NCUSIF protect up to $250,000 per depositor (Photo by Kevin George/Shutterstock)

Don’t expect credit unions to be up-to-date with the latest technology in banking.  The big banks have deeper pockets, so they have the luxury to invest in cutting-edge technology as fast as they come.  Credit unions can’t always do that.

In recent years, banks have shifted from traditional to almost entirely online. For example, your national bank would probably allow you to check your balance, move funds, apply for credit cards and loans, pay bills or ask for money market quotes – all online without having to call the bank.

We doubt if you can find a credit union with the same kind of online interface.

Credit Union Vs. Bank Savings Accounts: Which Is Better?

Both credit unions and banks offer savings account. However, the rates and fees are slightly different. Here are the main things to pay attention to:

Online banks usually offer a higher interest rate in savings accounts and in CDs, IRAs, and money market accounts .

With traditional banks, it's not always the case. Part of the traditional banks, such as Citi Accelerate Savings or Chase Premier Savings, still offers higher interest than you can get with the top credit union, such as PenFed or Alliant credit union.

However, credit unions usually offer higher rates than most traditional banks when it comes to CDs and savings accounts.

Financial Institution
Savings APY
CD APY
American Express
3.75%
1.15% – 4.50%
Marcus
3.75%
3.90% – 4.75%
Capital One
3.40%
3.30% – 4.30%
Discover Bank
3.60%
2.00% – 4.75%
PenFED Credit Union
2.70%
2.00% – 4.35%
Axos Bank
Up to 5.02%
/
Ally Bank
3.75%
2.00% – 5.00%
Alliant Credit Union
3.10%
5.05%

Credit unions want to help members and aim to return the profits to owner-members, so they try to keep account fees to a minimum.  The result would often be free checking account at a credit union minus all the account restrictions that most big banks impose.

And those pesky fees that banks charge for simple transactions like direct deposits, fund transfers, wire transfers, and balance transfers?  You’re most likely to find them non-existent with your friendly credit union down the block.

Bank/institution
Monthly Fee
Bank Type
Bank of America Advantage Plus Checking
$12 can be waived by maintaining an account balance of $1,500, qualifying deposit of $250+ per month or enrol in Preferred Rewards
Traditional
Chase Total Checking®
$12 Can be waived if you maintain a $1,000 minimum daily balance, making direct deposits or Associated SnapDeposits of $500 or more per statement cycle, or holding $2,500 in combined deposit accounts with the same statement cycle date or having a Health Savings Account or investment account
Traditional
Citi Checking Account
$12 Can be waived if you make one qualifying direct deposit and one qualifying bill payment per statement period, maintain a combined balance of $1,500 per month across your eligible accounts or if you’re aged 62
Traditional
PNC Standard Checking
$7 per month can be waived if you maintin $500+ direct deposit per month, $500+ monthly balance in savings or age 62+
Traditional
U.S. Bank Checking
$6.95 Can be waived by maintaining an average account balance of $1,500, have $1,000+ in direct deposits per month or be aged 65+
Traditional
Wells Fargo Everyday Checking
$10 Related to Wells Fargo Everyday Checking. The fee can be waived if you maintain a minimum daily balance of $500 or receive at least $500 in qualifying direct deposits per month. The fee is also waived if you’re 17 to 24 and have a linked Wells Fargo Campus Debit Card or Campus ATM card linked to the checking account
Traditional
Capital One 360 Checking
$0
Online Only
Amex Rewards Checking
$0
Online Only
SoFi Bank
$0
Online Only

It depends on which credit unions and which banks you are comparing. Most people find that many credit unions offer lower fees and better interest rates on savings accounts than banks though. Some banks might offer better interest rates depending on the time of year or the current market conditions for savings accounts.

It’s always worth checking your local credit unions before choosing a bank because they might have better rates.

Credit Union Vs. Bank Personal Loan: How They Compare?

When it comes to a personal loans, there are a couple of differences between banks and credit unions:

Credit unions naturally offer power rates on their loans. They have the capacity to redirect any surplus funds to help their customers because they do not concern themselves with making too much profit.

Credit union staff are more personal, which is ideal when transacting over the counter, especially when you’re applying for a loan.

At a traditional bank, they will do most of the dealings and evaluation online and on paper – you’d hardly have to talk to a live human being.

Credit unions still take the old-school personalized approach.  Many take time to get to know their customers and local markets comprehensively. 

So, when they evaluate a loan borrower, they will try to get to know the applicant on a more personal level (his work, habits, financial ability) and not confine themselves to conventional indicators like credit scores and tax returns.  You might say that a credit union would listen to your appeal and explain why they should give you a loan.

Let’s face it:  banks do not like to risk their money with borrowers who they think may not be able to repay them – such as those from the low to middle-income groups.

Credit unions are more open to these groups.  Potential borrowers who don’t bring in a flawless profile such as immaculate credit history, are more likely to get a loan from a credit union than from a bank.

It depends on the credit union and your credit score. All lenders will view your credit report to see if you are a risky borrower or not. They might also view your debt-to-income ratio to see if you have enough money coming to make payments on the loan.

In general, though, credit unions are known for being a little more lenient on giving out loans to borrowers. You will need to have a good credit score though and meet other terms and conditions. You might also need to shop around for loans from several different credit unions before choosing one.

Credit Union Vs. Bank Credit Cards: How They Compare?

While credit unions cards usually don't offer great rewards or special perks, there are some reasons to consider it, especially if your credit score is not on top:

A rewards program is almost a standard feature of a credit card, but credit unions are slow to keep pace with banks in this area. Many banks offer incredible rewards credit cards because they see that it is a critical consideration that sways a customer to patronize a specific bank and get a credit card.

Those banks have programs that reward credit card customers with points, mileage, cashback, or sign-up bonuses.  So, while banks offer a wide range of credit card rewards, including special deals and exclusive promotions, you won’t find the same features from a credit union.

 

Card
Rewards
Annual Fee
Rewards Type
united explorer
United Explorer Card
1X – 2X 2x per $1 spent on United purchases, hotel accommodations, restaurants & eligible delivery services and 1x per $1 spent on all other purchases
$95 ($0 first year)
Miles

Delta SkyMiles Gold American Express Card Review

Delta SkyMiles® Gold American Express Card
1X – 2X 2X miles on delta purchases, at restaurants worldwide (including take-out and delivery in the U.S) and at U.S. supermarkets, and 1x miles on all other eligible purchases
$99, $0 intro first year (Rates & Fees)
Miles

chase freedom unlimited card

Chase Freedom Unlimited®
1.5% – 5% 5% on travel purchased through Chase Ultimate Rewards, 3% on dining at restaurants, including takeout and eligible delivery services, 3% on drugstore purchases and 1.5% cash back on all purchases
$0
Cash Back

AMERICAN EXPRESS gold card

American Express® Gold Card
1X – 4X 4X points at restaurants (including Uber Eats purchases in the U.S.) and U.S. supermarkets (up to $25,000 per year in purchases, then 1X points), 3X points on flights booked directly with airlines or on amextravel.com, 2X points on rental cars through amextravel.com and 1X points on all other purchases
Points

chase_sapphire_preffered

Chase Sapphire Preferred® Card
2X – 5X 5x total points on travel purchased through Chase Ultimate Rewards, 3x points on dining and online grocery purchases and 2x on other travel purchases. Plus, earn 1 point per dollar spent on all other purchases
$95
Points

citi double cash

Citi® Double Cash Card
2%* 2% cash back rewards rate – 1% every time you swipe and another 1% upon payment.
$0
Cash Back

Capital One Savor Cash Rewards Credit Card
1% – 4% unlimited 4% cash back on dining, entertainment, and popular streaming services, 3% at grocery stores and 1% on all other purchases.
$95
Cash Back

Suppose you apply for a credit card from a credit union, and they turn you down; it is not the end. Usually, you will still have the option to ask the decision-makers to take another look and reconsider. Some credit unions have procedures for this situation where a loan committee composed of employees and members review the initial credit decisions.

So, even if they initially turn down your request for a low-interest card, you can always write a letter of appeal to the committee and explain your side. If they see that you have the income to maintain the card and that a low-interest card can help your financial management, they might eventually give their thumbs up.

It depends on your credit union. If you are using a credit union that doesn’t have many ATMs or branches, getting a credit card might not be worth it because you won’t be able to withdraw money if you ever need to. Having the card, though, can give you access to buying things online or making in-store purchases.

Credit cards issued by credit unions often have lower fees and interest rates than credit cards offered by banks. You can also help build your credit with a card from a credit union to make receiving funding easier in the future.

Credit Union Vs. Bank Mortgage: How They Compare?

If you considering getting a mortgage from a credit union or a bank, here are the main differences between them when it comes to mortgage: 

Given the same size, type, and term of a loan, you would predictably have to pay lower fees to a credit union than a bank. Remember that credit unions try to earn only as much as is necessary to continue operations and not primarily to make huge profits, they ‘return’ extra funds they earn to members in the form of higher interest on deposits or lowered fees.

In turn, this means that the closing cost (not including no closing cost mortgage) and origination fees, if ever they collect, will also be much less. Credit union mortgage interest rates generally tend to be lower than traditional banks. However, the rate difference may not be as vast as expected. In addition, the diversity of mortgage products is much better in traditional banks than in credit unions.

Typically, the mortgage approval process for credit unions is more lenient to members than traditional banks.  This is because credit unions are not corporations that must stick to a prescribed set of rules and restrictions – unlike banks in general.

Their legal personality gives them the flexibility to work with borrowers with non-traditional sources of income and clients with less than the ideal financial background.

For example, a credit union may be more open to accommodating your loan application than a traditional bank if you are a freelancer or self-employed, with a low credit score or past loan defaults. 

Because credit unions cater exclusively to their members who belong to certain types of groups, they extend unique courtesies such as loans that they have specifically modified to fit the members’ financial status.

If you are familiar with current banking practices, you may know that lenders (like banks) customarily sell the mortgage loans to various lenders or services.  This process can happen over and over during the 30-term of a common mortgage.

For the borrower, there’s really no additional risks or burden on his part.  However, it is still inconvenient even if it is not your own doing.  You see, each time the lender sells your mortgage, you will have to make payments to a new company and most often in a new location. Although most lenders are very efficient, it might still open situations of late payment postings or even issues with escrow accounts.

As a practice, credit unions would not normally sell your mortgage.  This is because credit unions give out “in-house” loans to earn from interest income rather than selling them to earn a one-time fee. As a borrower, you can have the assurance that you will just be dealing with one and the same lender until you’ve fully paid off the loan.

FAQs

Credit unions were set up in order to help people save money. The services they offer are meant to encourage members to save money and to offer loans to members who may need some financial help. Credit unions often offer terms for loans that are more favorable than banks and other financial institutions.

They offer many alternatives to people that don’t have to bank with a large bank or a more expensive bank.

Credit unions may have tons of advantages, but they come with drawbacks too. Most credit unions have fewer branches and ATMs than the average bank, so you might find yourself traveling across town to withdraw money. Most services can be managed online though to save you time from traveling.

Some credit unions have restricted membership. This means you may have to attend a certain school, live in a certain location, or have a certain employer to access credit unions. This might make it hard for some people to access the services.

Your money is safe at a credit union, whether you are using a federal one or a state one. Your savings at a credit union is basically a share of the ownership because credit unions are owned by members from the same group you are in.

Credit unions are insured by the NCUA which makes them just as safe as banks. All members are federally insured $250,000 in coverage.

It depends on how you use the credit union.

Checking account and savings account services do not show on credit score reports, so they won’t affect your credit score. However, if you use the credit union to take out a loan and you make all your payments on time, this can help your credit score.

If you receive a loan, make sure you are always making the minimum payments on or before the due date.

Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor, which helps consumers make better financial decisions.  Silvermann's areas of expertise include investing, banking, and credit cards. Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more. Aside from being a finance expert, his background includes working as a business and financial analyst. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
Banking Reviews
Best Banking Accounts

Table of Contents