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Credit Unions vs. Banks: How to Decide

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Chanelle Bessette

Chanelle Bessette is a personal finance writer at NerdWallet covering Banking, especially Bank Bonuses and Promotions. She previously worked at Fortune, Forbes and the Reno Gazette-Journal. Her expertise has appeared in The New York Times, Vox and Apartment Therapy.

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Tony Armstrong

Tony Armstrong leads the banking team at NerdWallet. He has covered personal finance for over a decade. Tony began his NerdWallet career as a writer and worked his way up to editor and then to head of content on the banking team. His writing has been featured by the Los Angeles Times, MarketWatch, Mashable, Nasdaq.com, USA Today and VentureBeat. Tony lives in Minneapolis, Minnesota.

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Kathleen Burns Kingsbury

Kathleen Burns Kingsbury, founder of KBK Wealth Connection and host of the Breaking Money Silence podcast, is an internationally published author and speaker. As an expert on financial psychology, Kathleen has appeared on television and her work has been featured in The New York Times, The Wall Street Journal, "PBS NewsHour," Money magazine, Today Money, Forbes and CNBC.

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If you’re weighing the choice between a credit union versus a bank, there are a few important things to consider about the two types of financial institutions.

The main difference between a credit union and a traditional bank is that credit unions are not-for-profit, whereas banks are for-profit enterprises. Knowing about the other differences will affect which home you choose for your checking account, savings account or certificate of deposit.

Credit union vs. bank: Differences at a glance

Credit union advantages

• Typically offer slightly higher interest rates on deposits than brick-and-mortar banks, particularly national institutions.
• Tend to offer lower interest rates on loans.
• Emphasis on community.

Credit union disadvantages

• Membership may require meeting certain work, residential or occupational requirements.
• Many typically offer branches only in a limited area or region.

Bank advantages

• More branches in the region or across the country.
• Typically quicker to roll out new apps and other tech.

Bank disadvantages

• For deposit accounts, big banks and traditional banks typically offer interest rates that are much lower than the national average rates.
• Tend to have higher interest rates on loans.

Credit union vs. bank: What to consider when choosing

Interest rates, technology and tools, and ATMs and branches

Interest rates: On average, credit unions tend to offer higher rates on deposits. Most savings rates at most traditional banks are very low.

Online banks are a different story. They tend to offer the best rates of all. (Check out more about online banks.)

Technology and tools: Banks often adopt new technology and tools more quickly.

ATMs and branches: Broad ATM and branch networks are the norm for national banks; credit unions might belong to large, cooperative networks of ATMs, such as Allpoint, and offer shared branches. If in-person service matters to you, look at banks and credit unions that have local branches. If you just need to withdraw or deposit cash on a regular basis, verify you’ll have enough fee-free ATMs nearby.

Fees

Some banks and credit unions charge fees. Ask about monthly maintenance and overdraft fees. Many banks and credit unions offer ways for customers to waive a monthly fee, such as having at least one monthly direct deposit or maintaining a minimum balance.

While many financial institutions have eliminated or cut back on charging for overdrawn accounts, for the banks and credit unions that still charge for them, overdraft fees can get quite expensive, often in the range of $30-35, and can sometimes be charged multiple times per day.

Not-for-profit vs. for-profit enterprises

Banks are for-profit enterprises, while credit unions are not-for-profit. Credit unions in principle exist to serve a community of people tied by a “bond of association,” which may be based on location, employer, faith, membership in another organization or other factors. To serve its community, a credit union provides financial products on the most favorable terms it can afford to offer.

Making your choice between a credit union and a bank

Identify what features matter to you most. Figure out which account and customer service features work best for your situation, and make a prioritized list.

Find your top contenders. Research which national, local and/or online banks and credit unions offer the best account features for what you need.

Narrow the list based on your top criteria. Other aspects to consider: Do some contenders on your list perform better in ways you might value in the future (such as having a great digital experience, extensive ATM access or loan offerings)? Do any negatives (higher fees, too few branches) change your mind about which to choose?

Credit union vs. bank: Frequently asked questions

Are credit unions safer than banks?
Federally insured credit unions and banks are both safe places to keep your money. The National Credit Union Administration protects deposits (within certain limits) at insured credit unions and the Federal Deposit Insurance Corp. protects deposits (within certain limits) at insured banks.

Is it better to use a credit union or a bank?
To decide if a bank or a credit union is better for you, you’ll need to identify what’s important to you and how each type of financial institution matches your priority. If you want higher deposit rates and don’t need access to branches across the country, for example, you might prefer a credit union. If you want access to in-person services and don’t mind lower interest rates, a bank might be more suitable.

What’s the main difference between a credit union and a bank?
The main difference between a credit union and a bank is that credit unions are not-for-profit, whereas banks are for-profit enterprises.