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Banks vs Credit Unions Compared

Differences Between Credit Union vs Banks
Jacqueline DeMarco
Jacqueline DeMarcoUpdated March 31, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Banks and credit unions offer similar financial products and services, but there are some key differences between them. Credit unions are not-for-profit organizations that focus on serving a specific region or specific group of people. Banks, on the other hand, are for-profit companies. They tend to offer more products and services than credit unions but charge higher fees and pay less interest on deposits.Depending on your needs and preferences, one might be a better choice than the other. Here’s a closer look at banks vs credit unions and the pros and cons of each.

How Are Credit Unions and Banks Different?

The key difference between credit unions and banks is that banks are for-profit institutions that funnel profits to their shareholders, while credit unions are nonprofit organizations and return their profits to their customers (who are called “members”). Because of this, credit unions tend to charge less interest on lending products and offer higher annual percentage yields (APYs) on savings accounts than banks. Another big difference is who they serve. Any qualified applicant can open a savings account or checking account at a bank. To open an account at a credit union, however, you have to become a member. While membership requirements are not as strict as they once were, you may have to work in a certain job or industry, belong to a certain religious group, or live in a certain geographical area to join a credit union. Banks and credit unions also differ in terms of size and offerings. Banks tend to be larger, have more branches and ATMs, and offer more financial products and services than credit unions. While both institutions typically offer online banking, banks tend to have more state-of-the art digital banking tools.Credit unions also use different terminology — customers are called “members” and accounts are often referred to as “share accounts.” A savings account is often referred to as a “share savings account,” while a checking account may be called a “share draft account.”Recommended: Why Are Banks Closed on Sundays?

How Are Banks and Credit Unions the Same?

Banks and credit unions offer similar financial products and services, including checking and savings accounts, certificates of deposit (CDs), loans, online/mobile banking, and in-person banking. In addition, both banks and credit unions are typically federally insured, which means you can’t lose your money (up to $250,000 per account, per account holder) were the bank or credit union to go belly up.Recommended: 10 Key Benefits of a Savings Account 

Pros and Cons of Using a Bank

Compared to credit unions, banks offer both advantages and disadvantages. Here’s how they stack up.
Wider range of banking servicesHigher rates on loans
More branches and ATMsLower rates on savings products
No membership restrictionsHigher account balance requirements 
Better online and mobile banking optionsMore and higher fees

Pros and Cons of Using a Credit Union

When compared to banks, credit unions also have both benefits and drawbacks. Here’s a look at their pros and cons.
Lower rates on loansMembership restrictions
Higher rates on savings productsLimited products and services
Personal connectionFewer branches and ATMs
Fewer and lower feesLimited online and mobile banking options
Recommended: Guide to Choosing and Opening a High-Yield Savings Account 

Credit Union vs Bank Security

Both banks and credit unions typically offer deposit insurance in the event that the institution were to go out of business. For banks, the Federal Deposit Insurance Corporation (FDIC) provides insurance coverage up to $250,000 per depositor, per bank, for each account ownership category. For credit unions, the National Credit Union Administration (NCUA) offers coverage up to $250,000 per share owner, per insured credit union, for each account ownership category. Some people feel banks are more secure since they are typically larger than credit unions, but they aren’t necessarily any more safe just because of their size. The insurance is really what matters. Before opening an account at any bank or credit union, it’s a good idea to make sure that they have FDIC or NCUA coverage.

How Online Banks Are Shifting the Conversation

The rapid growth of online-only banks offers consumers yet another banking option. In some ways, online banks offer the best of both banking worlds — competitive APYs and low, or no, banking fees, combined with high-tech, user-friendly digital banking services. Like credit unions and banks, online banks are typically federally insured.Online banks generally have lower overhead costs than brick-and-mortar banks and credit unions and pass that savings on to their customers in the form of higher interest rates on savings accounts. But, while they typically offer a wide network of fee-free ATMS, they don't have physical branches. As a result, if you like to have the option of in-person banking, you may be better off going with a traditional bank or credit union over an online bank.

Which Is Right for You? Credit Union vs Bank

Whether a bank or a credit union is the right fit for you depends on your banking needs and personal preferences. If you want the convenience of nationwide branches and ATMs, easy access to mobile banking, and a wide array of financial products, a bank may be the better choice. But if you’re looking for lower rates and fees on loans, higher APYs on savings, and a more personalized customer service experience, you might prefer a credit union.

Compare Savings Accounts

When considering where to open a savings account, it’s a good idea to shop around and compare not only APYs but also initial deposit requirements, ongoing balance requirements, and fees. If you’re not sure where to start your search, Lantern by SoFi can help. With our online banking marketplace, it’s fast and easy to compare high-yield savings accounts based on APY, fees, and balance minimums all in one place.Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

Which is better, a credit union or a bank?
What is the downside of a credit union?
Is your money safer in a credit union or a bank?
Photo credit: iStock/PeopleImages

About the Author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline DeMarco is a personal finance writer and editor based in Southern California. While she spends the bulk of her time writing about complex financial issues, she also tackles a variety of subjects ranging from food to fashion to travel. Her work can be found across dozens of publications such as Credit Karma, LendingTree, Northwestern Mutual, The Everygirl, and Apartment Therapy.
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