Credit union vs. bank: Which is best for your money?

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When it comes to managing your money, one of the biggest decisions is choosing between a credit union and a bank. While they offer many of the same services – like checking and savings accounts, loans, and credit cards – there are some distinctions to be aware of. 

Credit unions are member-owned cooperatives focused on personalized service, while banks are for-profit corporations that tend to have more branches and a wider range of offerings. Understanding these differences can help you determine which option is best for you.

Credit unions vs. banks: At a glance 

What is a bank?

A bank is a for-profit institution that offers a wide range of services to help you manage your money. There are several types of banks. This includes large national banks like Chase and Wells Fargo, regional and community banks with a smaller geographic footprint, and online banks without physical branches. According to the FDIC, there are more than 4,500 banks in the country.

Banks provide various services, such as checking and savings accounts, loans, credit cards, and investment products.

Advantages of banks

Banks, particularly larger institutions, offer several advantages. They often have advanced technology and digital banking features, says Joe Camberato, CEO of small business lending platform National Business Capital. 

Many banks offer a wide range of products to meet diverse financial needs. Plus, they also often have extensive branch and ATM networks and the ability to scale services as your financial needs grow.

“Banks can offer higher dollar amounts, better reward programs, and more streamlined application processes because of their investment in technology,” says Camberato. “If you grow into a larger business or a larger depositing customer, they can provide you with capital that scales along with your finances.”

What is a credit union?

A credit union is a non-profit organization its members own, focusing on providing personalized service and support to help you reach your financial goals. 

To join a credit union, you must meet certain eligibility criteria, such as working for a specific employer or industry, living in a particular geographic area, belonging to a certain organization or association, or having a family member already a credit union member.

Credit unions offer many financial services as banks, including checking and savings accounts, loans and credit cards, investment products and retirement planning services, and financial education and counseling resources. There are around 4,700 federally-insured credit unions in the U.S., on par with the number of banks. 

While there are some fairly large credit unions, they still pale in comparison to the biggest banks. Navy Federal Credit Union, the largest credit union in the country, has 355 branches — a significantly smaller footprint than the more than 4,700 branches that Chase owns and operates.

Advantages of credit unions

Credit unions offer several unique benefits to their members. The best credit unions often offer personalized service, strong relationships with members, lower fees, and better interest rates on loans and savings accounts. 

Camberato points out that credit unions “offer their unique benefits through greater personalization like loan programs for borrowers with troubled credit histories.” 

Many credit unions are also very involved in the communities they operate in. While credit unions may have fewer branches and less advanced technology compared to large banks, they often participate in shared branching and ATM networks, expanding their reach and accessibility. 

Credit unions are community-oriented organizations,” says Kate Hao, founder of digital finance company Happy Mango. “They prioritize having strong personal relationships with their customers, and many offer services such as free financial education programs and counseling services at their branch offices.”

Key differences between credit unions and banks

Ownership structure and profile model

One of the most significant differences between credit unions and banks is their ownership structure and profit model. 
Credit unions are owned by their members, who are also account holders. As non-profit institutions, credit unions return profits to members through lower fees, higher savings rates, and lower loan rates. Some even pay their members dividends each year. 

For example, PenFed Credit Union paid out a whopping $695 million in dividends last year.

In contrast, banks are owned by shareholders and operate as for-profit institutions, focusing on generating returns for investors.

Eligibility requirements 

Credit union membership is based on a common bond, such as employment at a specific company, residence in a particular area, or membership in an association. To join a credit union, you must meet these eligibility requirements.
Banks are open to anyone who meets their account opening criteria, regardless of affiliations.

Fees and interest rates 

In general, credit unions tend to offer lower fees and better interest rates compared to traditional banks. Credit unions can pass savings on to members because they are not focused on maximizing profits. 

According to research from the National Credit Union Administration, credit unions had higher average savings rates for CDs, money market accounts, and savings accounts than banks. 

There is one exception to this — online banks. The best online banks have lower overhead costs and can often provide competitive rates and low or no fees, rivaling credit unions in this regard.

Product offerings 

There’s “virtually no difference between banks and credit unions in the type or structure of consumer financial products they offer,” says Hao.  

Both credit unions and banks offer a range of essential banking products and services, such as checking and savings accounts, loans, and credit cards. 

If you’re choosing a credit union or a bank, you should pay close attention to each institution’s list of offerings and minimum balance requirements. Credit unions often tailor their offerings to the specific needs of their member base, while banks, particularly larger institutions, provide a more comprehensive array of products, including specialized services for different customer segments.

Technology and accessibility

Banks, especially large national chains, are known for their advanced online and mobile banking technologies. They also tend to have more extensive branch and ATM networks. Bank of America, for example, has more than 3,800 branch locations and 15,000 ATMs.

While credit unions may have less advanced technology and smaller physical footprints, many are investing in improving their digital offerings. Additionally, some credit unions participate in shared branching and ATM networks, expanding accessibility. 

Customer service and community focus 

Credit unions are known for their personalized, member-focused approach to customer service. As smaller, community-oriented institutions, they often provide more individualized attention and support. 

Banks, particularly larger ones, may offer more standardized services. In terms of community involvement, credit unions tend to focus more on supporting and engaging with their local communities, while banks' community impact may vary.

How to choose between a credit union and a bank 

Do the advantages of credit unions outweigh the benefits of banks? There’s no simple answer. Here are some key factors to consider. 

Consider your individual needs 

Determine whether you can join a credit union based on its membership requirements. A credit union may be a viable option if you meet the criteria, such as living in a specific area or working for a particular employer. 

However, a bank might be better if you don’t qualify or prefer the convenience of a larger branch and ATM network.

Evaluate rates, fees, and product offerings 

Think about your standard approach to managing money. How often do you actually visit a branch? How often do you need to withdraw or deposit physical cash? Do you worry about hitting minimum balance requirements?

“Look at the rates, terms, reputation, and reward programs each offers,” says Camberato. “Also, think about the specific products you need. For example, if you’re interested in a CD, compare credit unions' and banks' terms and rates.” 

Consider customer service 

Think about the level of personalized service and support you expect from your financial institution.

“The biggest factor I tell my clients to consider when deciding how to bank is what kind of service they are looking for?” says Nick Marino, CEO of Breakaway Wealth. “Credit unions are the best bet for my younger clients who don't need to access a physical bank branch frequently. For clients who prefer the convenience of having [more branches in more cities], a big bank [may] be the best bet.”

Think about your financial goals 

Think about your long-term financial goals and how your needs may evolve. 

While you might just be opening a new checking account today, you will need a wide range of financial products and services throughout your life – a car loan, a mortgage, a retirement plan, and more. If you want to keep many of those under the same roof, find a financial institution where you can grow.

Frequently asked questions about credit unions and banks 

Bottom line

When choosing between a credit union and a bank, there is no one-size-fits-all answer. 

Credit unions are known for their personalized service, lower fees, and better interest rates, but they may lag behind banks regarding technology and accessibility. Banks, particularly large national chains, offer more advanced digital tools, wider product selections, and extensive branch and ATM networks.

The right choice depends on your individual financial needs and priorities. A credit union could be a great fit if you value a local, community-oriented approach and don't mind more limited branch options. 

A traditional bank may be the better option if you prefer a wider range of services and nationwide access – and are willing to potentially pay higher fees or earn lower interest rates.

Editorial disclosure: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.