When most people think of checking and savings accounts, mortgages or car loans, they think of banks. Heck, we call a lot of those financial products “bank” accounts. But what about the bank’s cousin, the credit union? Given the ubiquity of banks, it’s no surprise that some folks don’t understand the fundamental differences between the two— let alone what a credit union actually is.
Banks and credit unions offer the same products and services, for the most part. However, there are differences that will affect which type of financial institution would be best for you. In this guide, we provide detailed comparisons to help you better understand them and make an informed decision about where to put your money.
Banks and credit unions offer virtually the same menu of products. In some cases, financial products at credit unions may have unfamiliar names — for instance, credit unions refer to savings accounts as “share accounts” and to customers as “members” — but at both institutions you’ll have a variety of deposit and loan accounts to choose from.
The distinction between the two types of financial institutions doesn’t end there. Below, we describe the most common areas where banks and credit unions diverge.
- Bank: Banks are for-profit financial companies and can be large or small, national or local. In most cases they are public companies, which means they are led by paid board members, who are not necessarily depositors themselves at the banks they operate. As with other public companies, the ultimate owners are the bank’s shareholders who purchase company stock as an investment, for which they expect a financial return.
- Credit Union: Credit unions are not-for-profit financial cooperatives that are typically small and local. They are run by member-owners on a one member-one vote system. Under this structure, members agree on all of the cooperative’s decisions together. And unlike a bank’s paid board, directors at most credit unions are unpaid volunteers who are elected by vote.Credit union profits are distributed to members in two ways: 1) Members earn interest (called “dividends” by many credit unions) on their deposit accounts, and 2) some credit unions periodically provide dividend checks.
- Bank: Like any ordinary company, a bank is free to conduct business with any customer.
- Credit Union: By law, credit union membership is restricted to certain groups of affiliated people based on, for example, where they live, work, worship or attend school. Those who belong to a particular group, association or organization may also qualify. You can qualify if another member of your family or household belongs to the credit union, and some credit unions will qualify anyone who makes a small donation to a particular charity. And under the Federal Credit Union Act, once you become a member of a credit union, you are a member for life even if you leave your affiliated group. Use WalletHub’s credit union search tool to find one that will accept you as a member.
Product & Service Variety
- Bank: Commercial banks, especially large ones, frequently offer many financial products and services beyond just consumer banking. In many cases their size and financial clout allow them to offer a wider range of consumer products and services than credit unions.
- Credit Union: Credit unions tend to be more narrowly focused on financial services for consumers. While some may offer accounts for small businesses, credit unions concentrate more on the financial needs of their members. Although the range of credit union financial products may be narrower than those offered by banks, they seek to make up for it by offering better insurance rates, lower fees and personal service.
Accessibility & Customer Service
- Bank: Banks can be big or small, but even the largest credit union won’t match the branch and ATM networks of a medium-sized bank. And customers of larger banks can expect to find conveniently located branches and ATMs even when they travel. Banks tend to provide greater access to services such as 24/7 customer service, weekend hours and the latest advances in electronic and mobile banking.But their larger size often means a sacrifice in other areas such as personal service. The bigger the bank, the less personal the attention customers tend to receive. In 2014, banks scored 76 out of 100 points on the American Customer Satisfaction Index (ACSI), compared with 85 points for credit unions.
- Credit Union: To compensate for their limited presence, many credit unions have joined ATM- and branch-sharing networks to provide their members more convenient access to services. Nonetheless, a number of credit unions still offer limited hours, and some smaller credit unions don’t provide electronic banking services, mobile banking apps or even ATM cards at all. But what credit unions lack in physical presence, they tend to make up for with superior customer service.
Fees, Incentives & Rates
- Banks: In general, banks charge many more — and more expensive — fees than credit unions. And compared with credit unions, banks commonly pay their customers lower interest earnings on deposit accounts and charge higher interest rates on loans, but not in every case. On the flip side, banks usually offer the best rewards on credit cards.
- Credit Unions: Fees, such as overdraft and nonsufficient funds (NSF) fees and ATM fees, tend to be lower at credit unions than banks. Membership requires a deposit of as little as $5 and most do not require a minimum daily balance to avoid fees. Furthermore, according to WalletHub’s Banking Landscape Report, credit unions offer higher rates of return on savings accounts, especially high-yield products such as money market accounts and CDs.
- Bank: As for-profit companies, banks are subject to state and federal income taxes on corporate profits, either directly or through taxes paid by their owners.
- Credit Union: As not-for-profit organizations, credit unions pay no state or federal income taxes, an advantage that helps make it possible to offer favorable interest rates and charge fewer and cheaper fees to members. However, credit unions are not immune to the payroll, sales or property taxes that every business must pay.
Two different agencies provide deposit insurance to bank and credit union customers. The Federal Deposit Insurance Corporation (FDIC) insures deposits at almost all banks, whereas the National Credit Union Administration (NCUA) insures deposits at all federal credit unions and most state credit unions.
But the level of coverage is the same: In both cases, funds are insured up to $250,000, depending on your type of account and the number of people who own it. Check out WalletHub’s guide on FDIC & NCUA Insurance: How the Government Protects Your Money to learn more.
Most Americans conduct their financial transactions at a bank. But millions of Americans find that credit unions serve them better. Which one is better for you will depend on your particular priorities.
WalletHub’s Banks & Credit Union search tool can help you identify the financial institution that is right for you. Some things you may want to take into account as you review your choices:
- Affordability: For the most affordable financial products, it’s generally tough to beat the low fees and favorable interest rates offered by credit unions. You might also consider online-only banks, which in recent years have grown to be strong contenders against traditional banks and credit unions. Without physical branches, online-only banks have considerably lower overhead, allowing them to offer excellent rates on their products.
- Customer Service: If you are seeking personal service, a credit union may be a better bet, but you shouldn’t overlook community banks, which often offer similar levels of customer service.
- Accessibility: If convenient access to branches and ATMs is a priority, one of the larger banks may best suit you.
- Service Variety: If you want one financial institution to handle a wide variety of needs ranging from checking and savings to investment accounts and insurance, you should make sure that a credit union — or a smaller bank — offers all the products you are seeking. In your case, a bank may be a better fit.
- Eligibility: Finally, don’t overlook the membership requirements of local credit unions. Since they are limited to members of affiliated groups, your choice of credit unions may be very narrow.
Share your thoughts in the Discussion below on why you chose a bank or a credit union for your own personal finances.