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

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The fundamental difference between a Bank and one checkout is that banks have shareholders and operate to make profit as their primary objective. Credit unions are non-profit financial institutions. With this model, each account holder—also known as a credit union member—essentially “owns” a stake in the credit union.

While banks pass profits on to shareholders, credit unions reinvest profits back into the credit union – often in the form of lower rates and lower fees. Banks and credit unions each have advantages and disadvantages, and choosing a financial institution is a personal decision, so it’s important to know the advantages and disadvantages of both.

Here’s what consumers need to know before choosing one.

Which is safer, credit unions or banks?

Both types of financial institutions are equally safe. From small local credit unions and banks to those operating around the world, the federal government insures each.

What is the FDIC?

The Federal Deposit Insurance Corporation is a government agency operated by the federal government. It insures up to $250,000 per person, per approved bank.

What is the NCUA?

The National Credit Union Administration is also a government agency run by the federal government. It offers the same protection to credit union members that the FDIC offers to banks – $250,000 per person, per licensed credit union.

Did you know?

If you have deposits with different financial institutions totaling up to $250,000, each is insured separately. When you deposit more than $250,000 in a single bank or credit union, the amount above $250,000 is not guaranteed if a financial institution runs out of money or goes bankrupt. The insurance generally covers only one of each approved account type.

Are interest rates on loans lower at banks or credit unions?

Many factors go into the individual rate a person receives on a credit card or loan. Generally speaking, consumers can expect lower interest rates on loans from credit unions.

In June 2021, the average rate for a term of 60 months new car loan was 2.87% in credit unions and 4.78% in banks. Although a difference of less than 2% may seem small, it could save hundreds or even thousands of dollars in interest over the life of a loan..

Mortgage rates are more comparable between banks and credit unions. The rate difference for a 30-year fixed rate mortgage was one basis point in June 2021. The average credit union rate was 3.14%, while the average rate at a bank was 3.15%..

Generally, credit unions offer slightly higher interest rates on deposit accounts. The national average annual percentage rate on 12-month certificates of deposit from credit unions is 1.32%, which is a 35 basis point improvement over the national bank average..

Are earnings on deposits higher at banks or credit unions?

Credit unions also consistently offer higher annual percentage returns on deposit accounts such as savings accounts, certificates of deposit, and money market accounts..

In June 2021, the average five-year CD with a balance of $10,000 gained 0.74% at credit unions and 0.61% at banks. It may not seem like a lot, but the difference adds up over a lifetime..

What are the disadvantages of credit unions?

There are pros and cons to everything, and credit unions are no exception.

Credit Union Membership Requirements

Credit unions began as a way for small groups of people to collaborate and manage their money together without the need for a large bank. As the credit union model evolves, the idea of ​​exclusivity remains.

Credit unions have membership eligibility requirements. Some are broad and simply require you to live in a particular region of the country, but others are limited to a workplace or membership in an organization..

Competitive rates

The rise of online banking challenges the idea that credit unions offer the lowest rates. Banks that operate 100% online without physical branches do not have as much overhead. This means that they can offer lower rates while making a significant profit for shareholders.

Mobile banking and credit unions

There’s a misconception that small credit unions don’t offer resources like online and mobile banking, but that’s not true. While the offerings aren’t as robust as the big banks, most credit unions offer some form of online and mobile banking.

How to Choose a Bank or Credit Union

Although all financial institutions offer similar banking services, each is unique. Before choosing a bank or credit union, think about what you need most from your financial institution.

While it’s important to manage all of your financial transactions with one institution, consider factors such as:

  • Mortgages
  • Credit card
  • Car loans
  • Savings products
  • Availability of branches and ATMs

Good to know

Banks and credit unions often participate in ATM networks with other financial institutions, making it easy to access money on the go without paying fees if your institution doesn’t have one nearby .

Final take

Choosing a bank or credit union is a decision that affects all aspects of a person’s financial life. After understanding the basic differences between banks and credit unions, consumers should research individual financial institutions to choose the one that best suits their personal needs.

Sydney Champion contributed reporting for this article.

Our in-house research team and on-site financial experts work together to create accurate, unbiased and up-to-date content. We verify every statistic, quote and fact using trusted primary resources to ensure that the information we provide is correct. You can read more about GOBankingRates processes and standards in our Editorial Policy.

About the Author

Katy Hebebrand is a freelance writer with eight years of experience in the financial industry. She received her BA from the University of West Florida and her Masters from Full Sail University. Since she began working full-time as a freelance writer three years ago, she has written on topics spanning many areas, including home building, families and parenting, legal and business communications. /company.

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