Bank vs. Credit Union: What’s the Difference and How to Choose

Who Can Join

Banks have customers. Anyone can open an account, provided they are 18 or above and can verify their identity. 

Credit unions have members, who are part owners of the institution. Membership is typically limited. There are several ways that credit unions can structure membership. They can restrict membership to:

• A specific geographical area (most common)
• An employer(s)
• An industry (i.e., teachers)
• Military service
• An organization or charity

Many smaller credit unions limit membership to a geographical area or employer. 

Larger credit unions that open membership nationally will often require membership in an organization/charity or being a military member (i.e., Navy Federal Credit Union). There are some national credit unions that anyone can join, typically by joining an organization and paying a nominal membership fee.

💡 Most credit unions also open membership up to the family of existing members. 

Available Locations

There are two types of banks: local banks and large national (or even international) banks.

Smaller banks will often have several branches and ATMs located around a small geographic area. Larger national banks will have thousands of branches and ATM locations across the country, perhaps even overseas. 

Nearly all credit unions follow the small bank model. Most credit unions are limited to a dozen or so branches residing in a limited geographical area. For instance, Consumers Credit Union is limited to the Chicago region. 

Some larger credit unions have locations that span multiple states, but they are still limited. For instance, a credit union that serves military members may establish branches only near military bases.

💡 Even though credit unions are have limited locations, most are part of a credit union network. A credit union network, like the CO-OP Network, allows members from one credit union to use the branches and ATMs of another in-network credit union for free.

Products & Services Offered

All credit unions and banks offer the same basic services, such as savings accounts, checking accounts, and loans. 

The larger the bank or credit union, the more products and services it can offer. 

That said, there are a few products you are more likely to encounter at a bank versus a credit union and vice versa. 

Banks, especially larger ones, are more likely to offer business-related products, such as business loans and banking accounts. Banks usually have a wider range of credit cards available and can offer a variety of investment accounts/services.

Credit unions are more likely to offer supplemental savings and checking accounts. This can include holiday accounts, vacation accounts, teen checking accounts, etc. 

Credit unions often have limited loan offerings. While most offer mortgages, auto loans, and limited personal loans, few offer other types of loans, like student loans.

Credit unions are more likely to offer products like credit-builder loans or payday alternative loans, designed to help members build credit or solve short-term money problems. Many credit unions provide financial education for members.

Smaller credit unions might not offer robust online or mobile banking. Larger credit unions, though, can offer mobile and online banking services that rival those of large bank chains. 

Interest Rates and Fees

Interest rates and fees are a major reason why many people choose a credit union over a bank.

Credit unions are not-for-profit. This means that all of their profits are reinvested in members in the form of higher yields on checking accounts and lower interest rates on loans. They can also offer free banking accounts, often with low minimum deposits, low or no fees and no required balances. 

Banks are for-profit enterprises. The money they make goes to shareholders and executives. The board of directors is more concerned with making money than helping their customers save money. 

The board of directors for credit unions are often volunteers. In many cases, any credit union member can volunteer for a spot on the board of directors. Changes to account offerings or interest rate changes can be voted on by all credit union members. 

Insured Funds

Every account at an FDIC-insured bank is backed by $250,000 worth of insurance. This means that if the bank were ever to go belly up, the federal government would return you the full value of your account up to $250,000. 

🧐 The Federal Deposit Insurance Corporation (FDIC) was established in 1933 as a preventative measure against the bank runs that occurred during the Great Depression and before.

Credit unions are not backed by FDIC insurance. But that doesn’t mean that your funds are at risk. Federal credit unions – any credit union with the word “federal” in the name – are offered insurance by the National Credit Union Administration (NCUA). This federal government agency was established in 1970 and now offers the same protection as the FDIC. Accounts are insured for up to $250,000. 

Non-federal credit unions may be insured by state agencies or private insurers. If you’re considering a credit union you should know who insures them and for how much.

Is Customer Service Important?

Do you want to be a name or just an account number? 

Most credit unions and smaller banks have limited locations and customers. This often means that they know their customers by name. And if you need help, they are ready and available. 

Large banks often have centralized customer service centers. And the branch staff have too many customers to remember your name. It may be difficult for small depositors to get personal attention.

👉 For example, I opted to go with a large bank to get a mortgage preapproval. Every time I called the bank, I talked with a different person. While this was great for getting my questions answered asap, it often meant I had to re-explain my situation every time. 

If you are frequently visiting brick-and-mortar locations, personable customer service will be more important. 

It’s worth noting that better customer service isn’t universal to credit unions. Some national credit unions may lack that personable customer service, while some local banks may have it in spades. 

💡 When it comes to customer service, it is better to evaluate your local branch(es) instead of the financial institution as a whole.

Cost Versus Availability

Earning high dividends on your checking account balance is great, but is it worth it if there is never anyone available when you need help?

Financial institutions have notoriously bad hours. Banking hours are often limited to 8 hours a day and weekends are often a dead zone for service. And don’t get me started on banking holidays. 

The upside to big banks is that they have locations across the US in multiple time zones. So even if the banks are closed on the east coast, customer service is likely still open for those on the west coast. They are also more likely to have expended online customer service hours.

If you are often making financial transactions outside regular banking hours, this availability is worth considering. 

Suppose after-hours transactions are not a concern for you and won’t be in the foreseeable future. In that case, a credit union’s cost savings and earning potential might be more to your liking. 

Do You Need Multiple Products/Services?

How many financial accounts do you have? It might not seem like many at first, but you might be surprised once you start adding them up. 

How many of the following do you have?

1. Checking account
2. Savings account
3. Debit card
4. Credit card
5. Auto loan
6. Student loan
7. Mortgage
8. Business account
9. Retirement account

The average person has 5 or more open accounts and 3 or more credit cards. 

Managing all of these accounts is difficult as is, but if you scatter them around to different banks and financial institutions, it becomes even more complicated. 

In fact, according to a recent survey, 50% of the respondents indicated they used 2 or more financial institutions, with the most common reasons being convenience and products/services offered. 

Being able to have all (or most) of your accounts at one financial institution can be a real selling point.

Many credit unions have basic accounts and loans, and if that’s all you need, then a credit union is a great choice.

But if you need specialized loans and accounts, especially business accounts, you’ll want to consider a national credit union or large bank.