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What Is the Difference Between a Bank and a Credit Union?
Both provide federally insured coverage of deposits, but services and costs can vary
It may seem like they are the same, but there are differences between banks and credit unions to consider.
Pete Ryan
Key takeaways
- Bank and credit union deposits are insured up to $250,000 per depositor and account type.
- Credit unions often offer lower banking fees and higher interest rates, but banks tend to offer a broader range of financial products and services.
- Banks may offer trust accounts, estate planning and other financial planning services you might not find at a small credit union.
If you’re looking for a place to stash your savings, you have a wide array of choices, ranging from small, community-owned banks to multinational financial institutions with branches worldwide. But your options don’t stop there. Credit unions offer many of the same services as their banking counterparts — sometimes at a lower cost.
Banks and credit unions share one important feature: Deposits are federally insured for up to $250,000 per depositor and per institution for each type of covered account. Bank accounts are insured by the Federal Deposit Insurance Corporation (FDIC), while credit union accounts are covered by the National Credit Union Administration’s (NCUA) share insurance fund.
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This means that even if the bank or credit union fails, you won’t lose money if your deposits are within the coverage limits.
The FDIC insurance covers checking, savings and money market deposit accounts, as well as certificates of deposit. NCUA insurance covers deposits in share draft and share savings accounts, as well as time deposits, which are similar to bank checking and savings accounts and certificates of deposit (CDs).
Most banks and credit unions are insured by the FDIC or the NCUA, but it’s always a good idea to double-check before you open an account. The FDIC offers a tool you can use to check a bank’s status; the NCUA offers a similar tool.
Keep in mind that while many banks and credit unions offer annuities, mutual funds and other types of investments, those accounts aren’t federally insured.
Banks vs. credit unions
The primary distinction between these two types of institutions is who owns them, which affects the services they provide, the interest rates they offer customers and their banking fees.
Banks are for-profit entities owned by shareholders or other investors, and generally, anyone can open an account, provided they meet minimum deposit and other requirements. Credit unions are nonprofit institutions that are owned by their members, and you must be a member to open an account. (Some credit unions charge a small initial fee to join.)
Whether you’re able to join a particular credit union varies. Many are affiliated with certain companies, making employees of those companies automatically eligible. You may also be eligible based on your neighborhood or your affiliation with a church, fraternal group or other organization. Some of the largest credit unions, such as Navy Federal, Pentagon Federal and Security Service Federal, are open to members of the military and their families.
If you’re eligible for membership in a credit union (or more than one), the choice between a bank and a credit union depends on the products and services you plan to use. Because credit unions are nonprofit, they often charge lower fees and offer higher interest rates than banks. Their interest rates on mortgages, car loans and personal loans may be lower, too.
Where do banks excel? They may offer more branches and ATMs than credit unions, although many credit unions participate in shared networks that expand their reach. Banks may also offer more sophisticated digital tools than smaller credit unions, and their larger asset pools may allow them to offer larger loans.
Banks may also offer estate planning and other financial planning services you might not find at a small credit union, though the number of credit unions offering those services has been increasing.
If you’re willing to shop around and open more than one financial account, you can enjoy the best of both worlds. You may discover, for example, that your local credit union offers a more attractive rate for a savings account, while a major bank offers a lower rate on a car loan or mortgage.
How to narrow your search
Once you’ve decided whether a bank or a credit union better fits your needs, the next step is choosing a specific institution. Rates, fees and services can vary widely, so it pays to compare a few options before opening an account.
Focus on what matters most to you:
- Fees. Look for monthly maintenance fees, overdraft charges and ATM fees. Some institutions waive fees in certain circumstances, such as if you maintain a minimum balance or set up direct deposit.
- Interest rates. Compare rates on savings accounts, CDs and loans. Even small differences can add up over time.
- In-person banking. If you prefer to receive service at a brick-and-mortar location, a nearby branch may be essential.
- Digital features. Look for tools such as mobile banking, credit monitoring and fraud alerts. These can make managing your money easier.
- ATM access. If you regularly withdraw cash, check whether the institution offers free access to a large ATM network or reimburses out-of-network fees.
- Customer service. Read online reviews or ask friends and family about their experiences, especially if you anticipate needing help managing your accounts.
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