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

Couple learning about the difference between a credit union and a bankImage: Couple learning about the difference between a credit union and a bank

In a Nutshell

Want to know the difference between credit union and bank products and services? It boils down to a few key features. Credit unions are nonprofits that you must be a member of in order to do your banking with them. And while a primary benefit of credit unions is often lower fees and better rates, banks may have more financial products to offer.
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Credit unions and banks offer some similar services but work on a different business model.

Banks and credit unions are both financial institutions that offer products and services — such as checking accounts and loans — to help you manage your money. But while banks are for-profit institutions anyone can do business with, a credit union is a nonprofit that only offers services and products to its member-owners.

While these two institutions offer many similar products, there are fundamental differences in how they operate. The table below provides some basic insight into the difference between credit union and bank products and services.

BanksCredit unions
For-profit institutions that may be privately owned or publicly tradedNonprofit institutions owned by members
No membership requiredMembership required
Generally lower savings rates and higher feesOften higher savings rates and lower fees
May be national or localMay be national or local
Typically offer many, varied financial productsMay be more limited in the financial products offered
FDIC provides deposit insuranceNCUA provides deposit insurance


How banks and credit unions are similar

If you’re a typical consumer looking to establish a banking relationship, chances are you’ll find what you need at either a bank or a credit union.

Here are some products and services that you’ll likely find at both credit unions and banks.

  • Checking and savings accounts
  • Money market accounts
  • Home loans
  • Auto loans
  • Small-business loans
  • Credit cards

Both banks and credit unions also typically offer direct deposit, mobile banking, ATMs and overdraft protection. And while some larger banks may have bigger ATM networks, some credit unions reimburse fees charged by ATMs outside of the credit union’s network, letting you withdraw money at more places for free.

Most credit unions and banks even provide similar protections for deposits, with up to $250,000 in deposited funds insured against loss. Insurance is provided by the Federal Deposit Insurance Corporation for banks, and by the National Credit Union Administration for credit unions. To ensure your institution is federally insured, look for an official NCUSIF- or FDIC-insured sign.

The difference between credit union and bank products and services

While the two financial institutions typically offer consumers the same products and services, there is a big difference between a credit union and a bank — and it all comes down to how the two do business and why they exist.

For-profit vs. nonprofit

Banks are for-profit institutions. And most are very profitable. Banks pay taxes on the profits they earn, and many are publicly traded companies with paid board members to answer to.

Credit unions are not-for-profits, so they’re generally exempt from federal taxes. Some even receive subsidies from organizations that sponsor them.

Because banks aim to make a profit — and have to pay taxes — they often charge higher fees than credit unions and pay lower rates to consumers. Credit unions, on the other hand, aim to serve their members. Credit unions return profits to members in a few different ways, including charging less interest on loans, charging lower fees and paying higher rates on savings accounts. They may also pay dividends to members if the credit union has surplus income.

Members only vs. no-membership required

Most banks do business with any consumer who doesn’t have a history of banking problems. Credit unions are different — they aren’t open to just anyone. A credit union is a cooperative made up of members who share a common bond, such as working in the same industry, being part of the same religious institution, or simply living in the same community.

You can’t just join any credit union you want and start banking there — you must be eligible to become a member. Some credit unions are very restrictive about who can join, while others are open to anyone willing to pay a membership fee.

Credit union members typically vote to elect a volunteer board that manages the credit union. Because the board is often made up of members who also do their banking at the credit union, the focus of the board is to serve their community’s needs rather than generating profits for outside shareholders.

Personal service vs. more services

As part of a community, credit union members often receive more-personalized service than what big banks offer. For example, credit unions may be more willing to approve loans for their members, and they may provide financial education and outreach.

Because members must share a common bond, credit unions are often smaller than national banks, and as a result they may not be able to offer as many products. For example, not all credit unions offer commercial loans.

Their small size may also limit the number of branches each credit union has — though thousands of credit unions have now joined together to provide shared branch services and shared ATMs so that members can do business at credit unions across the country as if they were at a home branch.

Which is right for you?

While the benefits of credit unions seem to make these financial institutions the clear winner over banks, ultimately each individual bank and credit union needs to be judged on its own merits. Some large national credit unions might provide less-personalized service than smaller community banks, while other credit unions may be so small they don’t even offer basic modern services, like mobile banking.

To decide where to maintain your financial relationships, think about what’s important to you and carefully compare the difference between credit union and bank services. Look at fees, minimum deposit requirements, daily balance requirements, interest paid on savings accounts and charged on loans, and the individual financial institution’s reputation.


Bottom line

Credit unions and banks offer similar products, but aren’t the same. Credit unions generally provide more-personalized service and give you a say in how the financial institution is run. And because they’re nonprofits, credit unions may also provide more-competitive rates, lower fees and an easier loan process. But since they aren’t always as large as banks, credit unions may be more limited in services.


About the author: Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbo… Read more.