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Credit unions and banks offer some similar services but work on a different business model.
Banks and credit unions are both financial institutions that offer products and services — such as checking accounts and loans — to help you manage your money. But while banks are for-profit institutions anyone can do business with, a credit union is a nonprofit that only offers services and products to its member-owners.
While these two institutions offer many similar products, there are fundamental differences in how they operate. The table below provides some basic insight into the difference between credit union and bank products and services.
Banks
Credit unions
For-profit institutions that may be privately owned or publicly traded
Nonprofit institutions owned by members
No membership required
Membership required
Generally lower savings rates and higher fees
Often higher savings rates and lower fees
May be national or local
May be national or local
Typically offer many, varied financial products
May be more limited in the financial products offered
The difference between credit union and bank products and services
Which is right for you?
How banks and credit unions are similar
If you’re a typical consumer looking to establish a banking relationship, chances are you’ll find what you need at either a bank or a credit union.
Here are some products and services that you’ll likely find at both credit unions and banks.
Checking and savings accounts
Money market accounts
Home loans
Auto loans
Small-business loans
Credit cards
Both banks and credit unions also typically offer direct deposit, mobile banking, ATMs and overdraft protection. And while some larger banks may have bigger ATM networks, some credit unions reimburse fees charged by ATMs outside of the credit union’s network, letting you withdraw money at more places for free.
Most credit unions and banks even provide similar protections for deposits, with up to $250,000 in deposited funds insured against loss. Insurance is provided by the Federal Deposit Insurance Corporation for banks, and by the National Credit Union Administration for credit unions. To ensure your institution is federally insured, look for an official NCUSIF- or FDIC-insured sign.
The difference between credit union and bank products and services
While the two financial institutions typically offer consumers the same products and services, there is a big difference between a credit union and a bank — and it all comes down to how the two do business and why they exist.
For-profit vs. nonprofit
Banks are for-profit institutions. And most are very profitable. Banks pay taxes on the profits they earn, and many are publicly traded companies with paid board members to answer to.
Credit unions are not-for-profits, so they’re generally exempt from federal taxes. Some even receive subsidies from organizations that sponsor them.
Because banks aim to make a profit — and have to pay taxes — they often charge higher fees than credit unions and pay lower rates to consumers. Credit unions, on the other hand, aim to serve their members. Credit unions return profits to members in a few different ways, including charging less interest on loans, charging lower fees and paying higher rates on savings accounts. They may also pay dividends to members if the credit union has surplus income.
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Members only vs. no-membership required
Most banks do business with any consumer who doesn’t have a history of banking problems. Credit unions are different — they aren’t open to just anyone. A credit union is a cooperative made up of members who share a common bond, such as working in the same industry, being part of the same religious institution, or simply living in the same community.
You can’t just join any credit union you want and start banking there — you must be eligible to become a member. Some credit unions are very restrictive about who can join, while others are open to anyone willing to pay a membership fee.
Credit union members typically vote to elect a volunteer board that manages the credit union. Because the board is often made up of members who also do their banking at the credit union, the focus of the board is to serve their community’s needs rather than generating profits for outside shareholders.
Personal service vs. more services
As part of a community, credit union members often receive more-personalized service than what big banks offer. For example, credit unions may be more willing to approve loans for their members, and they may provide financial education and outreach.
Because members must share a common bond, credit unions are often smaller than national banks, and as a result they may not be able to offer as many products. For example, not all credit unions offer commercial loans.
Their small size may also limit the number of branches each credit union has — though thousands of credit unions have now joined together to provide shared branch services and shared ATMs so that members can do business at credit unions across the country as if they were at a home branch.
Which is right for you?
While the benefits of credit unions seem to make these financial institutions the clear winner over banks, ultimately each individual bank and credit union needs to be judged on its own merits. Some large national credit unions might provide less-personalized service than smaller community banks, while other credit unions may be so small they don’t even offer basic modern services, like mobile banking.
To decide where to maintain your financial relationships, think about what’s important to you and carefully compare the difference between credit union and bank services. Look at fees, minimum deposit requirements, daily balance requirements, interest paid on savings accounts and charged on loans, and the individual financial institution’s reputation.
Bottom line
Credit unions and banks offer similar products, but aren’t the same. Credit unions generally provide more-personalized service and give you a say in how the financial institution is run. And because they’re nonprofits, credit unions may also provide more-competitive rates, lower fees and an easier loan process. But since they aren’t always as large as banks, credit unions may be more limited in services.
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About the author: Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbo… Read more.
The main difference between the two is that banks are typically for-profit institutions while credit unions are not-for-profit and distribute their profits among their members. Credit unions also tend to serve a specific region or community.
Banks are for profit, owned by it's investors and paid; board of directors runs the bank. FDIC(Federal Deposit Insurance Corporation) insures customers money if bank goes out of business. Money up to 250,000. Credit Unions are NON profit, owned by it's members.
Conclusion. The decision to go with a bank or a credit union is dependent upon for what you're looking. People choose banks primarily because of the convenience of multiple branches across the country, along with better technology.
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.
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.
Banks seek profit for shareholders and charge fees, while credit unions are nonprofit and do not charge fees. Banks have restricted membership criteria, whereas credit unions are open to anyone. Banks are regulated by the FDIC, while credit unions are regulated by the NCUA.
Just like banks, credit unions are federally insured; however, credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, the National Credit Union Administration (NCUA) is the federal insurer of credit unions, making them just as safe as traditional banks.
Banking refers to the services and activities that banks provide, such as deposit-taking, lending, and managing customer accounts. Banks are financial institutions that are licensed to operate by regulatory bodies, such as central banks or financial supervisory authorities.
One thing banks and credit unions agree on, however, is this one difference in banks and credit unions: Banks are profit-making companies owned by stockholders.Credit unions are not-for-profit businesses owned by their members.
Lower fees: Because credit unions are not-for-profit, they typically charge lower fees than banks. Higher savings rates: On average, you'll find better interest rates at credit unions than banks, though some high-yield accounts at banks rank at the top of the industry.
Explanation: The major difference between banks and credit unions is that credit unions are non-profit organizations owned by their members, while banks are not. Credit unions operate with the primary goal of serving their members' financial needs, instead of making profits for shareholders like banks.
At first glance, the most notable difference is size: Banks are larger, with more branches and ATMs and more robust online services. Because they're smaller, a credit union may also offer fewer financial products. Deposits of up to $250,000 per account, per institution, are protected in both banks and credit unions.
Federal law sets a minimum penalty on early withdrawals from CDs, but there is no maximum penalty. If you withdraw money within the first six days after deposit, the penalty is at least seven days' simple interest.
The NCUA insures credit union accounts, while the FDIC provides insurance for bank accounts. They both come with the same limits on insurance coverage. A decision about whether to store money in a credit union or bank shouldn't be affected by which federal agency insures the institution.
Credit unions are insured by the National Credit Union Administration (NCUA). Just like the FDIC insures up to $250,000 for individuals' accounts of a bank, the NCUA insures up to $250,000 for individuals' accounts of a credit union. Beyond that amount, the bank or credit union takes an uninsured risk.
What Are the Major Advantages of Credit Unions? Credit unions typically offer lower closing costs for home mortgage loans, and lower rates for lending, particularly with credit card and auto loan interest rates. They also have generally lower fees and higher savings rates for CDs and money market accounts.
Credit unions are generally considered to be safer than banks during economic downturns due to their conservative approach to risk and their emphasis on financial robustness.
Credit unions tend to offer higher interest rates for savings accounts than banks. Lower loan rates. Credit unions typically charge lower interest rates for loans than banks. Lower fees.
Since credit unions are member-driven and not for profit, members receive higher interest rates on savings, lower rates on loans and lower fees. On the other hand, profits made by banks are only distributed among their shareholders, meaning that the money banks make isn't returned to the people they make it from.
Banks are for-profit, meaning they are either privately owned or publicly traded, while credit unions are nonprofit institutions. This for-profit vs. not-for-profit divide is the reason for the difference between the products and services each type of institution offers.
A bank is owned by shareholders.A credit union is owned…by its members! This means a bank must turn higher profits to satisfy the shareholder demand for income. They tend to have higher and more fees, and they also charge more interest on loans as a result.
Credit unions can have several potential advantages over traditional banks, including: Lower or fewer banking fees. Higher deposit interest rates. Better borrowing rates.
Any income the credit union generates through interest, fees and loans is then used to fund community projects, reinvest into the organization or provide services that directly benefit members, like paying higher savings interest rates.
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.
Credit Unions are not-for-profit and member-focused, meaning we care more about people than profits. Family life, supporting the community, and helping people achieve their financial goals are all goals we foster. Large banks are, by nature, sales-driven and with sales targets come strict quotas.
Introduction: My name is Kimberely Baumbach CPA, I am a gorgeous, bright, charming, encouraging, zealous, lively, good person who loves writing and wants to share my knowledge and understanding with you.
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