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

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Credit unions and banks — what's the difference, anyway? They're both institutions where you can open accounts, and they both come with ATMs. That's really what you need out of a financial institution, right?

Banks and credit unions are both financial institutions at their core. That means that they both offer the same basic financial services that most people need: access to a checking and savings account, ATM options and loan options.

It's in the details of those offerings that the main difference lies. The governing ethos, the interest rates and the business practices of banks and credit unions can vary wildly. The nitty-gritty of the customer service can differ. Banks and credit unions are both financial institutions, yes, but their operating rules and procedures are often different.

Money is the single most important thread of our lives, so it can pay to understand the place where you keep your money.

Let's dive into the ways banks and credit unions are similar and different.

Major Differences

Banks are for profits. Credit unions are not-for-profits.

This is the biggest difference between a bank and a credit union, because it colors everything else about how they each operate. Banks are in it to make money. They have to keep their investors happy, and they have to stay competitive. They have to pay employees and advertise, and many large banks spend time and money lobbying the government about banking regulations and legislation.

Banks have investors. Credit unions have members.

Banks are run by managers, but they're owned by the investors. It's the same as any other business. They a have board of directors. When you start using a bank you're a customer at that business, not becoming a part-owner of the business.

Credit unions, on the other hand, are member owned. When you deposit money and start an account with a credit union, you become a member. You officially own part of the credit union.

Interest rates can differ.

Since credit unions are not-for-profits and are community-member owned, the focus is on creating great financial deals for its own community. Profits are used to do things like lower fees and offer higher interest rates.

Banks usually have lower interest rates on accounts.

Eligibility can be very different.

Since banks are generally bigger and less specific than credit unions, it can be easier to open an account at a bank. To keep their not-for-profit status, credit unions are required to limit membership to people who share a common bond. What that common bond is depends on each credit union. Your membership can depend on a number of factors: your employment type (e.g., there are teacher's-only credit unions), where you live, or being a member of another professional organization.

Banks generally cast a wider net for their customers. There aren't as many hoops to jump through to open an account at a bank as there may be at a credit union.

National vs. local.

Most credit unions are super local. You may not be able to find a branch outside of the city where you opened your account. If you travel a lot or split time between different cities or states, it'll be hard to find a credit union that works for you.

Banks generally have a national presence. You can open a Bank of America account in New York and have access to their ATMs in Houston. Banks offer bigger networks than credit unions.

Major Similarities

Both have insured deposits.

Deposits in banks and credit unions are federally insured for up to $250,000. Deposits in banks are insured by the Federal Deposit Insurance Corporation (FDIC) Deposits in credit unions are insured by the National Credit Union Administration (NCUA).

Both offer similar services.

Your closest major bank and your local credit union most likely offer the same exact services. You can open checking or savings accounts, you can open a CD (certificate of deposit), and you can receive loans from both. Individual institutions may offer special rates or services, but in general they both offer the same things.

How to Choose Which One Works for You

Choosing either a bank or a credit union comes down to what the right choice for your money is.

If you're a teacher and there's a teacher's credit union in your community, that may be the best fit. The credit union may offer options not available from a bank, like classes to help teachers understand their retirement options and networking opportunities for teachers in the area.

A larger bank will likely have more brick–and-mortar locations. Banks also tend to adopt new practices and tools much faster than credit unions, because they usually have more money and tools at their disposal.

Choosing where to do your banking can be a lifestyle choice. Some people turn to banks after becoming frustrated with the short reach of credit unions. Some people turn to credit unions after being burned practices at some big bank. Here at Investor Junkie, we've reviewed many of the most popular online banks. We particularly like Ally Bank, which offers great interest rates and customer service support 7 days a week from 7 am to 10 pm (Eastern Time) and charges no maintenance fees (as well as allowing integration with your Ally Invest account).

When choosing between a credit union and a bank, ask yourself these three questions to determine what's right for you:

  • Do I want to be a member or a customer at my financial institution?
  • Is there a drastic difference in interest rates between local credit unions and banks?
  • What aspects of banking are most important to me?

These are good starting points for this decision. Once you have these answers, you just may have the answer of which institution works best for you.

Kara Perez

Kara Perez is a freelance personal finance writer. She is the founder of, a company that connects women and money. Kara lives in Austin, TX and believes in the power of budgeting and peanut butter.

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