Choosing where to manage your finances is a critical decision.
With many people considering credit unions as an alternative to traditional banks, it's important to understand the differences between the two if you’re thinking about opening a new bank account.
Here, we’ll explore the pros and cons of joining a credit union instead of a bank to help you make an informed decision.
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Pro: Credit unions offer many of the same functions as banks
Credit unions provide a wide range of financial services that you would find at a bank. These include checking and savings accounts, loans, mortgages, and IRAs.
You don’t have to sacrifice any major financial functions by choosing a credit union over a traditional bank.
Pro: Enjoy lower fees and lower interest rates on loans
One of the biggest advantages of credit unions is that they generally charge lower fees and offer lower interest rates on loans compared to banks.
Since credit unions operate as not-for-profit entities, they can afford to return more value to their members rather than prioritizing profits for shareholders.
Pro: Higher rates on deposit accounts
Credit unions often provide higher interest rates on savings accounts and other deposit products compared to large national banks. This can help you maximize the returns on your deposited funds, making your money work harder for you.
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Pro: There are member benefits
When you join a credit union, you become a part-owner and have a say in how the institution is run. This means you’ll have input on leadership elections and key policies.
Plus, many credit unions offer member-exclusive benefits, such as discounts on various services and products through partnerships.
Pro: There's deposit insurance coverage
Similar to the Federal Deposit Insurance Corporation (FDIC) coverage provided to banks, credit union deposits are insured by the National Credit Union Administration (NCUA) up to $250,000 per account, per depositor.
This ensures your money is safe and protected against potential losses.
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Pro: There are shared branches
Credit unions often participate in a shared branch network, allowing members to access banking services at other credit unions’ branches nationwide. This is known as a co-op shared branch network.
This cooperative model expands your access to in-person banking services even if your credit union has limited locations.
Pro: Credit unions tend to be community-based
Many credit unions focus on serving specific communities, which fosters a strong local presence and personalized customer service. This community-based approach often includes support for local initiatives and giving back to the areas they serve.
Con: Fewer branch locations
A major downside of credit unions is that they typically have fewer branch locations compared to large national banks. This can be inconvenient if you prefer in-person banking or if you travel frequently and need access to branches in different areas.
Con: Specific membership requirements
Credit unions often have specific membership eligibility criteria based on factors like where you live, work, or worship. This can limit your options if you don’t meet the criteria for membership in a credit union you’re interested in.
Earn cash back on everyday purchases with this rare account
Want to earn cash back on your everyday purchases without using a credit card? With the Discover®️ Cashback Debit Checking account (member FDIC), you can earn 1% cash back on up to $3,000 in debit card purchases each month!2
With no credit check to apply and no monthly fees to worry about, you can earn nearly passive income on purchases you’re making anyway — up to an extra $360 a year!
This rare checking account has other great perks too, like access to your paycheck up to 2 days early with Early Pay, no minimum deposit or monthly balance requirements, over 60K fee-free ATMs, and the ability to add cash to your account at Walmart stores nationwide.
Don’t leave money on the table — it only takes minutes to apply and it won’t impact your credit score.
Con: There can be membership fees
Some credit unions charge membership fees to join or require annual dues. While these fees are usually nominal, they can be a drawback compared to banks that don’t have such requirements, which can help you keep more cash in your wallet.
Con: Limited mobile access and fewer online services
Credit unions may not offer as robust mobile banking options as larger banks. Their mobile apps and online services might lack some of the advanced features found in the apps of major banks, which can be a disadvantage if you rely heavily on digital banking.
Bottom line
Choosing between a credit union and a bank depends on your personal financial needs and preferences.
While credit unions offer benefits like lower fees, higher deposit rates, and a community-focused approach, they also come with potential drawbacks such as fewer branches and limited mobile banking features.
Consider what aspects are most important to you in a financial institution to make the best choice.
Are you willing to trade convenience for better rates and lower fees, or do you prioritize extensive branch networks and advanced digital services? Reflect on your priorities to decide which option will help you make the best smart money move.
Lucrative, Flat-Rate Cash Rewards
FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.
Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
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- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.74%, 24.74%, or 29.74% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
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