Updated March 13, 2023
By:Kailey Hagen
Our Banking Expert
When thinking about where to keep your money, a bank probably springs to mind. But it's definitely worth weighing the value of a credit union vs. bank before making any decisions. A bank is not your only option -- and it may not always be your best option. Credit unions are smaller and they offer some unique advantages. In this article, we'll go over what credit unions are and how to know whether one is a good fit for you.
Jump To
- What is a credit union?
- How do credit unions and banks differ?
- Pros and cons: Credit union vs. banks
- What is right for you: Credit union or bank?
- Still have questions?
- FAQs
What is a credit union?
A credit union is similar to a bank in many ways -- but credit unions are smaller, non-profit institutions.
Because they're non-profit, credit unions can usually offer better rates on these products than a bank:
- Savings accounts
- Checking accounts
- Mortgages
- Loans
- Credit cards (sometimes)
An example of a popular credit union is Alliant Credit Union. On the other hand, a popular bank is Bank of America. Below, you can compare their savings account rates:
Rates asof March 15, 2023
| Offer | ||
|---|---|---|
| Account | Alliant High-Rate Savings | Bank of America Advantage Savings |
| Rating | Rating image, 4.50 out of 5 stars. Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | Rating image, 2.50 out of 5 stars. Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. |
| APY | 2.95% | Up to 0.04% |
| Min. to earn APY | $100 | — |
| Next Steps | Read Review | Open Account for Bank of America Advantage Savings Read full review |
Credit unions are usually designed to serve the financial needs of a particular community, such as:
- Residents of a specific region
- Members of a certain faith
- Employees of a certain organization
- Other groups
They usually have eligibility requirements, but they aren't difficult to achieve. Banks, on the other hand, serve just about anyone.
Account names
Sometimes, banks and credit unions use different terms to refer to similar accounts. For example, what banks call certificates of deposit (CDs), credit unions often call share certificates. But other than the name, they're essentially the same thing.
Why people love credit unions:
- Emphasis on customer service
- Higher APYs on savings products
- Lower interest rates on loans
- Deposits insured by the National Credit Union Administration (NCUA)
How do credit unions and banks differ?
The key difference between a credit union vs. bank is that credit unions are nonprofits while banks are for-profit institutions. As a result, credit unions can offer lower loan rates and higher savings rates. However, credit unions tend to be smaller than national banks.
Pros and cons: Credit union vs. banks
Here's a closer look at some of the pros and cons of a credit union vs. bank so you can decide which is right for you.
| Aspect | Banks | Credit Unions |
|---|---|---|
| Branch network | Large, sometimes national networks with many locations | Usually only a handful of branches in a limited area |
| Interest rates | Higher rates on loans, lower rates on deposit accounts | Higher rates on deposit accounts, lower rates on loans |
| Online account management | User-friendly online accounts, often with mobile access | Some online tools may be available, but credit unions are slower to offer these |
| Customer service | You may never talk to the same person twice | Strong emphasis on personal relationships with members |
| Deposit insurance | Backed by the FDIC | Backed by the NCUA |
Credit union vs. banks: Personal loans
When shopping for a personal loan, there are two key factors that distinguish a credit union vs. bank.
First is the rates. As discussed above, you may be able to score a better rate with a credit union than with a traditional bank. This could save you hundreds or even thousands of dollars over the lifetime of your loan.
Credit unions may also have more lenient eligibility requirements. That means you could secure a personal loan from a credit union even when a bank might turn you away. They're worth considering if you have fair or poor credit.
Credit union vs. banks: Credit cards
You're more likely to find credit cards with a bank than you are with a credit union, but some credit unions do offer them. A credit union credit card may charge a lower interest rate, but otherwise, they're the same as bank credit cards. Requirements for approval are often less stringent, though you must be a credit union member to get one of its cards.
TIP
Read bank reviews
If you're looking for more in-depth information on banks, credit unions, and similar financial institutions, here are a few we've reviewed:
- Alliant Credit Union
- Charles Schwab Bank
- Discover Bank
- Prime Alliance Bank
- Synchrony Bank
- USAA Bank
Credit union vs. banks: Mortgages
Choosing a credit union vs. bank for a mortgage involves many of the same considerations as any other type of loan. You may be able to score a better rate and have an easier time getting approved for a mortgage with a credit union than you can with a bank. But you have to be willing to accept more dated online services, which can make managing your account a little more of a hassle.
Credit union vs. banks: In a recession
History shows that when it comes to a credit union vs. bank in a recession, the credit union is likely to fare a little better. While both can be hit hard by tough economic conditions, credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money. Both credit unions and banks have deposit insurance and are generally safe places for your money.
What is right for you: Credit union or bank?
There are many factors to keep in mind when comparing a credit union vs. bank. Ultimately, it's a personal choice. Some people may be willing to accept less favorable rates in exchange for banks' larger networks and more advanced online tools. Others may be willing to put up with the lack of a mobile app in exchange for better customer service and less stringent loan requirements.
When it comes to credit union vs. banks, compare all your options before deciding what's best for you. And don't be afraid to think outside the box. Some small, regional banks may give you great rates and customer service while offering better online tools than credit unions. And online banks are known for having some of the best rates and online tools around, though they have no branches at all. Think about what matters most to you in a financial institution when making your decision.
Still have questions?
Here are some other questions we've answered:
- What is FDIC insurance?
- Checking account vs. savings account: Which should you pick?
- What is APY?
The Ascent's best savings accounts
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's top savings account picks can earn you more than 10x the national average savings account rate.
Best Savings Accounts
FAQs
Credit unions are nonprofit organizations while banks are for-profit companies. Banks usually have more advanced online tools and larger branch networks, but credit unions win when it comes to interest rates and customer service.
A credit union is a better fit than a bank if you're looking for the most favorable interest rates and personalized customer support. They're also better options for those with fair or poor credit who may have difficulty getting approved at a bank.
A bank could be a better choice than a credit union if you prefer to manage your money online and want the best online tools. Banks will also appeal to those who regularly travel outside their local area and still want convenient access to branches and ATMs.
Our Banking Expert
By:Kailey Hagen
Writer
Kailey Hagen has been writing about small businesses and finance for almost 10 years, with her work appearing on USA Today, CNN Money, Fox Business, and MSN Money. She specializes in personal and business bank accounts and software for small to medium-size businesses. She lives on what's almost a farm in northern Wisconsin with her husband and three dogs.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Synchrony Financial is an advertising partner of The Ascent, a Motley Fool company. Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Kailey Hagen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Target. The Motley Fool recommends Charles Schwab and Discover Financial Services. The Motley Fool has a disclosure policy.
