Credit Union vs. Bank: What’s the Difference and Which Is Best?

When you need a place to park your money, one of the first questions you should ask is what kind of financial institution you want to bank with: a credit union or a bank?

Both are safe and smart choices for managing your money. Which is right for you depends on what you need from your banking relationship, the level of access you require, and what types of accounts you're looking for. In general, we recommend banks for people who tend to prefer large financial institutions with broader footprints and/or products and services to choose from, as well as more tech-minded individuals. Credit unions can be a better fit for people who want to prioritize being part of a community and would benefit from lower banking fees and borrowing rates.

Here's what you'll need to know about both credit unions and banks, including the pros and cons of each, to make your decision.

What is a bank?

A bank is a financial institution licensed by the government to accept and manage consumer deposits. Banks typically offer checking accounts and savings accounts at a minimum, but many also provide loans, mortgages, investing accounts, and even credit cards, too.

Although banks are there to help you manage your money, they are primarily in the business of making a profit. Some are publicly traded, and others are privately owned.

Regardless of a bank's structure, they all make money by charging service and account fees to customers, collecting interest on loans, charging fees to merchants, and performing specific types of services, such as creating a bank check or sending a wire transfer. Banks look to maximize profits to pass on the benefits to their shareholders.

Pros and cons of banks

Pros

• Branch access: Big brick-and-mortar banks can have vast branch networks, with in-person banking locations and ATMs in most or even every state. Chase, Wells Fargo, and Bank of America are the largest banks in the U.S. by number of branches if in-person support is important to you.
• Account options: Many banks are full-service institutions offering just about any type of bank account or financial product you can think of, from checking and savings accounts to loans and investing products. Even online banks tend to provide several products to choose from.
• Technology: Banks tend to invest in technology, and they often have better mobile apps and online platforms than credit unions. Online banks and banking platforms provide especially advanced digital tools, with options like Axos Bank, Chime®¹ <p class="">Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank, N.A. or Stride Bank, N.A.; Members FDIC.&nbsp;<br></p> , and Capital One 360 offering stand-out technology.

Cons

• Higher fees and lower APYs: Although banks offer many perks, traditional banks also have a lot of overhead. The cost of funding a large number of branches and staff is immense. To help keep profits high, traditional banks may have lower APYs for interest-bearing accounts and products.
• Higher loan rates: Interest rates for loans can also be higher than with a credit union, as traditional banks depend on profits from loans and fees and do not share these with members.
• Stricter lending requirements: As a rule, banks are stricter about credit and income requirements for loans, while credit unions tend to be more lenient with both.

What is a credit union?

A credit union is similar to a bank, offering checking and savings accounts, loans, investing, and other financial products and services. But unlike a bank, credit unions are not-for-profit financial institutions. Every member is a partial owner, and a voluntary board of elected directors manages a credit union.

Credit unions make money in the same way as banks. The biggest distinction is that the money a credit union makes is reinvested into the institution to benefit its members. This may be in the form of lower fees and interest rates on loans and higher APYs on savings accounts and investment products.

Credit unions tend to be more community-minded than banks. They usually have some criteria for membership because they want their members to be part of a larger community. Membership could be based on where you live, where you work, your interests, to whom you're related, and many other standards. Other credit unions, including online credit unions like Alliant and Bethpage Federal, have some options for those who want to become a member but don't meet the criteria, such as the choice to donate to a particular foundation or join an organization.

Read more: Credit Unions Anyone Can Join

Pros and cons of credit unions

Pros

• Not-for-profit: Credit union members benefit from the profits. When you need a loan, the APRs will likely be lower than a bank can offer. If you're looking to earn interest on your money, those interest rates may be markedly higher (especially for savings accounts).
• Personalization: Credit unions offer more personalized service and consideration as a rule, too. For example, I was recently able to refinance my mortgage through a local credit union when traditional banks would not approve my application. Their loan team worked with me and my financial situation to help make the refinance work for all of us.
• Safety: Insured credit unions are just as safe as banks. Many credit unions are regulated by the National Credit Union Administration and backed by the National Credit Union Share Insurance Fund. The NCUA offers up to $250,000 in deposit insurance, the same amount of protection the FDIC provides.

Cons

• Limited in-person networks: Credit unions may have limited branches and be restricted to a smaller geographical area. If you don't live near a branch, you may have to conduct your banking through a co-op branch, an ATM, or through online or mobile banking.
• Membership requirements: You may find a credit union that offers a generous APY for a high-yield savings account, as is common, but you may not meet the requirements for membership.
• Technology: A credit union may not be able to offer as robust a suite of technology to use and manage your accounts as a bank can. Many credit unions have online banking and mobile app options, but these may be somewhat lackluster compared to some tools from banks.

Read more: Pros and Cons of Joining a Credit Union Instead of a Bank

Differences between credit unions vs. banks

	Credit unions	Banks
Profit	Not-for-profit	For-profit
Branch networks	Often smaller than bank networks	Often larger than credit union networks
Fees and APYs	Usually lower banking fees and better APYs than banks	Usually higher banking fees and lower APYs than credit unions
Membership requirements	Common	Never
Insurance	National Credit Union Administration (NCUA) protects deposits up to $250,000 per person, per account category	Federal Deposit Insurance Corporation (FDIC) protects deposits up to $250,000 per person, per account category
Technology	Might be less advanced than banks	Can be a little more advanced than credit unions

The main difference between credit unions and banks is that one is for-profit, and the other is not-for-profit. Traditional banks offer more accessibility, technology, and convenience. However, because they have a high amount of overhead and focus on making as much profit as possible, loan interest rates may be higher, and APYs on interest-bearing accounts such as savings accounts, certificates of deposit (CDs), and money market accounts (MMAs) may be lower.

Credit unions are owned by members. The money they make in fees and interest is invested back into the institutions, which enables them to offer lower fees and interest rates on loans and high APYs on interest-bearing accounts. It also lets credit unions offer loans to applicants who might not qualify with many traditional banks.

You often must meet certain requirements for credit union membership, while banks have no such rules. You may also struggle to find a credit union branch if you live outside its service area.

Credit union vs. bank: Which is right for you?

Figuring out whether a credit union or a bank is right for you depends on your financial priorities and goals. If earning interest or borrowing money isn't a high priority for you, a bank is a good choice. You can take advantage of the accessibility and convenience of managing your money wherever you are.

But if you're looking to earn the best interest rates or want to be a member of a community-based financial institution that might place a bit more emphasis on your financial wellness, you want a credit union.

You may also find that having bank and credit union accounts best fits your needs. There are roughly as many federally insured credit unions as there are federally insured banks in the U.S., so you have plenty of options. Explore the best banks and the best credit unions to choose one.

FAQs

Bottom line

Both banks and credit unions are safe institutions to handle your finances. They operate similarly and offer the same types of products, including checking accounts, savings accounts, and loans. The main differences are in the fees, interest rates, convenience, accessibility, and technology they offer.

Before making any decisions about where to put your money, take some time to research banks and credit unions that you're interested in.