Credit Union vs Bank: What's the Difference? | The Motley Fool (2024)

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When shopping around "best of" lists, you might find credit union accounts next to bank accounts. What gives? Bottom line, they offer similar services. You can meet your banking needs at a bank or a credit union. But there are key differences.

If you can bank with a credit union, check out its perks first. Credit unions offer personable and community-first services, plus market-beating rates. Once you've done that, compare credit union features to those banks offer. You may be pleasantly surprised -- banks, especially online banks, have become competitive with credit unions in many ways.

Read on to compare the pros and cons of a credit union vs. bank with confidence.

What is a credit union?

A credit union is similar to a bank in many ways, but credit unions are nonprofit institutions. Because they're nonprofit, credit unions can usually offer market-beating rates on savings and checking accounts, mortgages, loans, and sometimes even credit cards.

Credit unions are usually designed to serve the financial needs of communities:

  • Residents of specific regions
  • Members of certain faiths
  • Employees of certain organizations
  • Other groups

What is a bank?

A bank is an institution where you can deposit savings and take out loans. Banks are often seen as a convenient and secure way to store money, and some account types also earn interest. Most banks have both online and in-person services.

Banks are for-profit organizations. At a bank, you can open checking and savings accounts, loans, credit cards, or other products. Almost anyone can join a bank.

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How do credit unions and banks differ?

The key difference between a credit union vs. bank is that credit unions are nonprofits while banks are for-profit institutions. As a result, credit unions can offer lower loan rates and higher savings rates. However, credit unions tend to be smaller than national banks.

Also, credit unions usually have membership requirements, but these aren't hard to meet. Banks, on the other hand, serve just about anyone. Banks are often less flexible because they must serve diverse customer bases.

Pros and cons: Credit union vs. banks

Credit unions compete with banks for customers, but there is more than meets the eye. Online banks now offer rates competitive with credit unions, and they offer different perks than legacy brick-and-mortar institutions. Here's an overview of how credit unions, brick-and-mortar banks, and online banks compare.

Credit UnionsBrick-and-Mortar BanksOnline Banks
Primary GoalService membersMake profitMake profit
Interest ratesUsually betterTypically lowerOften the best
FeesLower feesHigher feesLowest fees
ServicesBasicWide rangeUsually limited
Customer ServicePersonalizedVariesMainly online/phone
Branch AvailabilityLimitedExtensiveNone
ATM NetworkLimited but often in networksExtensiveUsually reimburse fees
Tech FeaturesBasicGoodExcellent
Regulation & InsuranceNCUA, similar to FDICFDICFDIC

Credit union vs. banks: How do the financial services compare?

Personal loans

When shopping for a personal loan, there are two key factors that distinguish a credit union vs. bank.

First is the rates. As discussed above, you may be able to score a better rate with a credit union than with a traditional bank. This could save you hundreds or even thousands of dollars over the lifetime of your loan.

Credit unions may also have more lenient eligibility requirements. That means you could secure a personal loan from a credit union even when a bank might turn you away. They're worth considering if you have fair or poor credit.

Many online banks and lending institutions offer personal loan rates competitive with credit unions. But if eligible, you should check the rates offered by your credit union. Review websites might fail to fully consider the perks of credit unions, which tend to be exclusive.

Credit cards

You're more likely to find credit cards with banks than you are with credit unions, but some credit unions do offer them. Credit union credit cards may charge lower interest rates, but otherwise, they're the same as bank credit cards. Requirements for approval are often less stringent, though you must be a member of the credit union.

Mortgages

Choosing a credit union vs. bank for a mortgage involves many of the same considerations as any other type of loan. You may be able to score a better rate and have an easier time getting approved for a mortgage with a credit union than you can with a bank. But you have to be willing to accept more dated online services, which can make managing your account more of a hassle.

Which is better to have in a recession?

History shows that when it comes to a credit union vs. bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money. Both credit unions and banks have deposit insurance and are generally safe places for your money.

What is right for you: a bank or credit union?

Shop around. Best advice, compare credit unions like you would banks. They're not the same, but you ultimately use them for the same purpose: to meet your banking needs.

When a credit union is a better choice than a bank:

Credit unions typically offer better rates to members than brick-and-mortar banks. They also tailor products to their communities, and customer service is sometimes better. Credit unions may provide better or more loan options to members with fair or poor credit.

When a bank is a better choice than a credit union:

Banks typically offer convenient online access and advanced technology compared to credit unions. Online banks may provide members with rates competitive with credit unions. Brick-and-mortar banks offer the most branches, ATMs, and nonessential banking services.

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Still have questions?

Here are some other questions we've answered:

  • What is FDIC insurance?
  • Checking account vs. savings account: Which should you pick?
  • Online vs. Brick and Mortar Bank: Which Is Better?

FAQs

  • Brick-and-mortar banks offer worse rates than credit unions, but the big ones have many physical branches you can walk into. They make in-person banking doable and have some of the biggest ATM networks out there. They may offer nonessential banking products like credit cards -- you may be able to manage all your monetary needs at one traditional bank.

  • Generally speaking, online banks offer the best rates on deposit accounts -- they're cheaper to operate, and banks pass savings onto customers. If you're technologically savvy and top-tier interest rates are your priority, online banks are your bread and butter.

We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Synchrony Financial is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Cole Tretheway has no position in any of the stocks mentioned. Kailey Hagen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Charles Schwab, and Target. The Motley Fool recommends Discover Financial Services and recommends the following options: short June 2024 $65 puts on Charles Schwab. The Motley Fool has a disclosure policy.

Credit Union vs Bank: What's the Difference? | The Motley Fool (2024)

FAQs

Credit Union vs Bank: What's the Difference? | The Motley Fool? ›

A credit union is similar to a bank in many ways, but credit unions are nonprofit institutions. Because they're nonprofit, credit unions can usually offer market-beating rates on savings and checking accounts, mortgages, loans, and sometimes even credit cards.

Is it better to have money in a bank or credit union? ›

Better interest rates: Credit unions typically offer higher interest rates on savings accounts because they have lower overhead costs than banks. Similarly, they offer lower interest rates on loans. Customer service: Credit unions pride themselves on offering better customer service than banks.

What is the biggest difference between a bank and a credit union? ›

Banks are typically for-profit entities owned by shareholders who expect to earn dividends. Credit unions, on the other hand, are not-for-profit, member-owned cooperatives that are committed to the financial success of the individuals, families, and communities they serve.

Do rich people use banks or credit unions? ›

This is why high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs) often choose banks offering private banking services, which include personalized products, one-on-one attention, waived fees, favorable rates, generous amenities, account security, and confidentiality.

Why do many people prefer to deal with credit unions rather than banks? ›

People choose banks primarily because of the convenience of multiple branches across the country, along with better technology. On the flip side, people choose credit unions primarily because of discounted loan rates, higher interest rates and better customer service.

Are credit unions safer than banks during a recession? ›

Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money. Both credit unions and banks have deposit insurance and are generally safe places for your money.

Is my money safer in a credit union or bank? ›

Generally, credit unions are viewed as safer than banks, although deposits at both types of financial institutions are usually insured at the same dollar amounts. The FDIC insures deposits at most banks, and the NCUA insures deposits at most credit unions.

Are credit unions healthier than banks? ›

Credit unions are insured by the National Credit Union Administration (NCUA), whereas banks are covered by the Federal Deposit Insurance Corporation (FDIC). Both the NCUA and FDIC provide the same level of protection and will insure your deposits up to $250,000.

What is more true about credit unions than banks? ›

"On average, credit unions pay higher interest rates on savings deposits than traditional banks. Credit unions are structured as non-profit institutions, allowing the reinvestment of profits back to members, including higher interest rates on high-yield savings and CDs," says Dr. Cherry.

What is the best credit union to bank with? ›

Choosing the best credit union: Where to begin
Brand nameBest forAPY*
AlliantOverallUp to 3.10%
PenFedRewards credit cardUp to 3%
First Tech Federal Credit UnionLow-interest credit cardUp to 5%
Consumers Credit UnionDeposit account varietyUp to 3%
4 more rows
May 22, 2024

Where do millionaires keep their money if banks only insure 250k? ›

Millionaires can insure their money by depositing funds in FDIC-insured accounts, NCUA-insured accounts, through IntraFi Network Deposits, or through cash management accounts. They may also allocate some of their cash to low-risk investments, such as Treasury securities or government bonds.

What bank do most millionaires use? ›

These 9 checking accounts are designed with the wealthy in mind and are intended for banking clients who desire convenient access to cash with premium benefits.
  • Morgan Stanley CashPlus. ...
  • TD Bank Private Banking. ...
  • Truist Wealth Checking. ...
  • PNC Private Bank Checking. ...
  • BNY Mellon Cash Management Access Account. ...
  • Chase Private Client.

Where do millionaires save their money? ›

Cash equivalents are financial instruments that are almost as liquid as cash and are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills.

What is the downside of a credit union? ›

Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass. May offer fewer products and services.

Why do people not like credit unions? ›

Some have argued that credit unions are inherently inefficient because of their one-member, one-vote governance structure.

Can the government take your money from a credit union? ›

Through right of offset, the government allows banks and credit unions to access the savings of their account holders under certain circ*mstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.

Why should I keep my money in a credit union? ›

NOT-FOR-PROFIT

Credit unions operate to promote the well-being of their members. Profits made by credit unions are returned back to members in the form of reduced fees, higher savings rates and lower loan rates.

Who is the best bank to bank with? ›

Best-of 2024 Banking Winners:
  • Alliant Credit Union: Best credit union.
  • Ally Bank: Best bank; best CDs.
  • Charles Schwab Bank: Best for ATM access.
  • Chase: Best for sign-up bonuses; best for branch access.
  • Discover® Bank: Best online banking experience.
May 10, 2024

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