Credit union vs. bank: How to decide which one is right for you


  • Wondering what the difference is between banks and credit unions? We’re here to help. There are pros and cons with each.
  • Traditional banks typically have physical locations and offer a wide range of products, from checking accounts to auto loans. However, as for-profit institutions, they don’t always have the best interest rates.
  • Credit unions may have fewer physical locations, but because they’re nonprofit and member-owned, interest rates are typically higher on savings accounts and lower on loans.
  • Find out which online bank Business Insider recommends »

Choosing a financial institution — whether a bank or credit union — isn’t just about finding a place to keep your money. It’s about an ongoing relationship. 

Since how your wealth grows depends on where you invest it, it’s important to carefully consider your priorities and goals in the process. 

For example, do you value convenience and access above all else, or would you gladly sacrifice those things for better interest rates? Is mobile banking a top priority, or would you rather have personal customer service? All of these questions — and more — will guide your decision. 

If you’re thinking about making the switch from a bank to a credit union or vice versa, here are some of the main pros and cons to help you determine the best route for your personal financial goals.

Banks

The pros

Banks are for-profit institutions, which comes with a number of benefits for customers. 

Physical locations and robust menu of services

Access and ease are common reasons for choosing traditional banks. Banks, especially national ones, often have plenty of locations around the country, so customers can visit a branch (or an ATM) while traveling or remain at the same bank if they move out of state.  

Most banks offer a robust menu of products and services, from personal and auto loans and private banking to investment opportunities and savings accounts.

Security

Security is another reason people prefer banks; many of them offer FDIC insurance on deposit accounts. Practically, this means your deposits will be guaranteed up to a certain dollar amount if the bank fails.

Convenience

Certified financial planner Dave Lowell, founder of Up Your Money Game, says banks can offer customers other benefits, like convenience or speed, simply because of their size. 

“Things might be quicker at a bank — for example, you might be able to work through loans a little faster because a bank has more capacity,” he says. “Sometimes it’s worth what you pay for speed, reliability, and service.”

Want to open a bank account? Generally, the process is relatively easy. All you’ll need is a government-issued ID and an initial deposit, which can vary depending on the bank and the type of account you’re opening.

Plus, many banks offer a more convenient way to manage money with 24/7 online service and automated phone services. 

Online banks

Online banks, like Ally and Simple, are a different beast. They don’t have physical branches, so they’re able to pass those cost savings along in the former of higher interest rates on savings accounts, but that also means you can’t walk into a branch if you need to speak to a banker. 

The cons

There are a number of drawbacks to banks as well, many of which come with their for-profit component. 

Stricter requirements

Because traditional banks are private entities, they’re focused on making money. According to Chane Steiner, CEO of Crediful, this means many banks have stricter requirements for opening accounts to reduce liability.

It may also be harder to take out a loan at a bank, since a for-profit institution sees someone with poor credit as a liability. 

Interest rates are not competitive

The for-profit nature of traditional banks can also mean higher interest rates on credit cards and loans, and lower interest on savings accounts. 

If the breadth of services and convenience of a bank align with your priorities, keep in mind that at the end of the day, banks are companies seeking a return on their investment, so you’ll pay for that convenience.

Credit unions

The pros

Personalized service

Credit unions are nonprofit, member-run institutions, which means they aren’t managed by a board of investors looking for a return on investment.

Since credit unions aren’t out to make a profit, some customers feel they offer more streamlined and personalized customer service. 

Competitive interest rates

This member-first setup typically translates to savings for members. CPA Rob Stephens, founder of CFO Perspective, says credit unions often provide better rates and lower fees because, unlike banks, they don’t need to earn a profit to distribute to owners.

Credit unions also don’t pay federal income taxes, which allows them to pass those tax savings to their members.

“Generally speaking, at credit unions, you’ll get slightly better rates on most things,” says Lowell. “If you’re getting an auto loan or a mortgage, you could have a lower interest rate, and if you’re opening a savings account or a CD, you’ll get a better interest rate.”

For example, many credit unions offer high-yield savings account rates at or near 2%, while most banks’ savings rates hover well below that. 

Member perks

On top of better rates, some credit unions offer members other perks. Lowell says he often sees co-op networks of credit unions waive ATM fees for their members.

“Credit unions don’t have to churn out a ton of for-profit numbers like big banks do — it’s a community of members, so they have a little more to go around,” he says.

The cons

While credit unions might offer some savings on financial products, they also come with some limitations. 

Potential for fewer products and services

Credit unions lack the reach and access to financial services many banks have, which means they might offer fewer products and services, from overdraft protection to loans and credit cards. 

“Credit unions are often more basic in terms of offering fewer features of membership because they’re distributing the money back to the people rather than the infrastructure,” says Lowell. 

Fewer physical locations

They’re also likely to offer fewer in-person branches than banks, which means that if you travel a lot, you might have to pay inconvenient ATM fees, and if you move, you might have to switch institutions. 

“There are few nationwide credit unions with branches in most states, and there are even fewer that offer financial services like equipment financing or investment management,” says Dennis Shirshikov, senior financial analyst at FitSmallBusiness.com. “For all of these reasons, people are attracted to traditional banks as a one-stop-shop for all of their financial needs.”

Not all credit unions are federally insured

In addition, not all credit unions are insured like banks. Federal credit unions are insured by the National Credit Union Administration, but some smaller credit unions are privately insured, which means they might not be backed by the US government and may not cover member deposits like federally-insured credit unions do.

Can be difficult to join

If you’re interested in becoming a member of a credit union, keep in mind that credit unions can take a little more effort to join. Many of them have rules on who can join, such as living in a certain geographic area or working for a particular employer. 

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