Credit Unions vs. Banks: What’s the Difference?

Banking

At first glance, credit unions and banks may not seem that different from each other. After all, they both offer consumer checking and savings accounts and they also provide loans using deposits.

Navy Federal

However, banks and credit unions also maintain several differences, particularly in their organizational design, infrastructure, and rates and fees.

We’ll show you what the differences are between these two types of financial institutions so you can decide which is right for you. With so many options available, it’s wise to explore them all to make managing your finances easier and more efficient.

What is a credit union?

Unlike a bank, a credit union is a financial membership organization operated on a non-profit basis. You’re not a customer, you’re a member. That generally means you must have some type of “bond of association” to qualify.

However, that can be pretty simple to achieve. Some credit unions bring together members from the same employer, geographic area, or association (such as an alumni association).

Being a credit union member also means that instead of opening an account, your deposits actually buy shares in the business. Credit unions are owned by members who then elect a volunteer board of directors to oversee operations.

Credit Unions Are Non-Profit

Credit unions are non-profit organizations run by members. So, profits are redistributed back to credit union members in the form of lower banking fees and higher interest rates on savings accounts.

Credit unions often have better loan rates and lower fees compared to their traditional bank counterparts. It’s not always the case, but interest rates on credit cards, mortgages, auto loans, and personal loans are competitive. Big banks, on the other hand, are for-profit institutions that work to create profits that are then distributed to their owners or investors.

A basic (but important) commonality between banks and credit unions is that both insure funds up to $250,000 for each depositor. Banks are insured by the Federal Deposit Insurance Corporation (FDIC). Credit union accounts are insured by the National Credit Union Administration (NCUA).

Who can join a credit union?

Qualifying for membership depends on the specific credit union you’d like to join. Local credit unions are convenient because you can develop a personal relationship with employees while enjoying easy access to branches and ATMs.

One of the easiest types of local credit unions to join is a geographic one. As long as you live within its physical boundaries, you should qualify for membership.

Check out your area for county, city, and state credit unions. You might also find a credit union attached to your place of work if your job is with a major employer. Many governmental agencies also offer credit unions for county or state employees.

There are plenty of credit unions that simply require a low, one-time donation to a specific non-profit organization to qualify for membership. Plus, regulations are becoming more inclusive to help smaller credit unions expand their membership criteria and open their doors to more customers.

See also: Best Credit Unions Anyone Can Join

Advantages of Joining a Credit Union

Credit unions provide many advantages to members, especially when compared to traditional banks. Credit unions are not-for-profit and member-owned, meaning that the profits of the credit union are reinvested back into the institution and used to benefit the members.

Credit unions tend to be more focused on customer service and their members’ satisfaction. They’re more likely to deliver personalized services.

The main advantages of joining a credit union include:

  1. Lower fees: Credit unions typically have lower fees than traditional banks. They also tend to offer fewer fees on their products and services.
  2. Lower interest rates: Credit unions typically offer lower interest rates on loans and credit cards than traditional banks.
  3. Higher savings rates: Credit unions typically offer higher interest rates on savings accounts than traditional banks. This can help you earn more money on your savings.
  4. Member benefits: Credit unions often offer exclusive benefits to their members such as discounts on services, free financial education, and access to unique products and services.
  5. Community involvement: Credit unions are often involved in their local community and may offer special benefits to members who live in the area.
  6. Flexible lending: Credit unions are often more willing to

Drawbacks of Joining a Credit Union

While credit unions offer various perks and benefits, they also come with some constraints. Just how important they are depends on your own banking needs. Many credit unions offer fewer financial services than large banks.

Most credit unions cover the basics of checking accounts, savings accounts, and loans. However, smaller credit unions may not have as large a selection of financial products to choose from. So if you’re looking for a sophisticated offering of account types, do your homework before making a choice.

ATMs

Many credit unions also have a smaller reach in terms of ATMs. If you join a local credit union and primarily stay close to home, this may not be an issue for you. However, if you travel often or join a federal or online credit union, you may notice that national banks have more branches and ATM locations.

That being said, many credit unions participate in a co-op ATM service. This allows members to use one another’s ATMs without incurring surcharges. For frequent travelers, a credit union’s participation in this program may be an important consideration.

Online Accessibility

Another potential drawback of choosing a credit union is a potential lack of technology. Online accessibility is crucial for many consumers today, but smaller credit unions don’t always match their banking rivals.

One reason is that they simply don’t invest as much money to increase their online infrastructure. When evaluating a credit union, make sure it offers online and mobile features that meet your needs.

What are the main differences between credit unions and banks?

Choosing between a bank or credit union really comes down to what you’re looking for in a financial institution. If you’re having trouble deciding, write down your needs and rank them by priority.

If you travel frequently and need free ATM access, you might want a large bank with locations across the company. You may also prefer a bank if you deposit checks frequently and want the most advanced technology for mobile check deposits.

On the other hand, you could value spectacular customer service along with low interest rates and fees. In that situation, a credit union might be a more attractive option for you. Consider your priorities and values to figure out which one will save you time, money, and stress when dealing with your finances.

What are the best credit unions to join?

Once you’ve decided to join a credit union, there are countless options to choose from. Start by exploring your local options. But if you’re looking for credit union membership with broad guidelines and a strong online presence, you still have a long list of contenders. Check out our shortlist below.

Affinity Plus

Based in St. Paul, Minnesota, Affinity Plus FCU extends its membership to anyone who has made a $25 donation to the Affinity Plus Foundation. There are other ways to qualify, including working for the state of Minnesota or volunteering at an eligible organization. The one-time donation makes it easy for anyone to join.

It’s also easy to get started with a checking account. The basic account is free and you get great tech features like online auto bill pay and mobile check deposits.

Affinity can also help you with retirement planning, estate planning, educational planning, insurance, and goal setting. If you’re self-employed, you can take advantage of accounts, loans, and services specific to businesses.

Alliant Credit Union

Alliant Credit Union

Alliant is another strong choice. Along with Chicago-based membership opportunities, you can also join by donating to Foster Care for Success. Once you’re a member, you’ll enjoy benefits such as a new mobile app, and free access to your credit score. You’ll also have access to more than 80,000 free ATMs across the country.

Alliant’s free checking account doesn’t have a minimum balance requirement. You can also choose from several savings accounts with a 1.20% APY. Additionally, you can sign up for various other financial products. These include loans, IRAs, trust accounts, and different types of insurance policies.

Connexus Credit Union

Yet another full-service credit union is Connexus, which is based in Wisconsin. Like the others on our list, Connexus offers membership-based on your charitable giving.

In fact, this is one of the cheapest options because you can join with just a one-time $5 donation to the Connexus Association. The foundation makes donations to many well-known charities like the American Cancer Society, the American Red Cross, and United Way.

Once you’ve joined, you can sign up for free checking as well as a savings account with just a $5 minimum balance. You can even open a Holiday Club Savings account. The account gives you the option to automatically transfer a small portion of each paycheck directly into a separate holiday fund. You can also save through money market accounts, individual IRAs, education IRAs, and even an HSA.

GTE Financial Credit Union

It’s easy to join GTE Financial with just a $5 member-owner share, which will be refunded if you leave. GTE Financial participates in several tech-savvy programs, including Popmoney and Deposit2Go. This makes it easy for you to handle your financial transactions on the go.

In addition to its standard banking services, members receive benefits like theme park discounts, DirecTV rebates, and Sprint discounts. GTE Financial also offers a rewards points program for your credit and debit cards.

Lauren Ward
Meet the author

Lauren is a Crediful writer whose aim is to give readers the financial tools they need to reach their own goals in life. She has written on personal finance issues for over six years and holds a Bachelor's degree in Japanese from Georgetown University.