Torn between a credit union or bank? From the outside looking in, they have many similarities. But a closer look will reveal that though they offer many of the same products, credit unions and banks are different in some ways. And those key differences can easily sway your decision in one direction or the other. 

So if you’re in the market for a new banking product and are looking to make the switch, keep reading to learn more. 

An Overview of Credit Unions 

Credit unions are non-profit entities that exist solely to serve their members and save them money on banking products. In other words, customers and not profits are the focal point of their organization. 

Key Benefits

1. People-Focused

Credit unions are co-operatives, which means they are ultimately owned and operated by their members and don’t have a commercial ax to grind. 

2. Lower Fees and More Competitive Interest Rates

Lower overhead for credit unions equals cost-savings for account holders in the form of minimal account maintenance fees (if any). And you probably won’t have to make a huge opening deposit or maintain a hefty monthly balance to avoid additional fees. 

Even better, fewer operating expenses for credit unions also means more competitive interest rates on debt products. To illustrate, here’s a breakdown from NCUA.gov of average rates from credit unions versus banks as of March 29, 2019: 

Credit Card and Mortgage Products Credit Unions 
(national average)
Banks
(national average)
Credit card  11.82 13.65
30-year fixed-rate mortgage 4.50 4.56
15-year fixed-rate mortgage 3.99 4.12
5/1 year adjustable-rate mortgage 3.92 4.25
3/1 year adjustable-rate mortgage 3.95 4.18
1-year adjustable-rate mortgage  3.75 4.14

 

Auto Loan Products Credit Unions 
(national average)
Banks
(national average)
Used car loan, 48 months 3.75 5.50
Used car loan, 36 months 3.62 5.45
New car loan, 60 months 3.70 5.15
New car loan, 48 months  3.57 5.03

3. Higher Rate of Return on Accounts

You can also expect the rate of return on credit union accounts to be slightly higher than what you’d find with banks. To illustrate, below is a comparison from NCUA.gov of returns from money market accounts from both credit unions and banks as of March 29, 2019: 

Bank Accounts Credit Unions 
(national average)
Banks
(national average)
Money market account- 2.5K 0.36 0.25

4. Shared Branching

Some banks try to make their offerings more appealing than credit unions by pointing out that they have far more locations in the U.S. But thanks to shared branching, you can walk into any credit union in the affiliate network and initiate transactions, like deposits and withdrawals.  

Another major perk: the co-operative network of ATMs throughout the nation that allows you to withdraw money from your credit union account, no matter where you are for free. And in the event you are charged, your credit union may offer some form of reimbursement.

5. Less Stringent Credit Criteria for Debt Products

To most large brick-and-mortar banks, you’re just a number. So when you apply for a debt product, your information is run through an online screening system and if you aren’t a perfect match, you can expect an instant rejection with no chance of going through underwriting. And since the competition is so stiff, the bank may not even bother reaching out regarding your loan application.

On the other hand, you may find that you’ll get a yes or at least a second set of eyes with a credit union instead of automatic rejection. And in some instances, there credit criteria for debt products is less stringent and they may be willing to give you a chance, particularly if you’re a long-time member and have a positive track record with their institution. 

6. Backed by the NCUSIF

Your credit union deposits are backed by the National Credit Union Share Insurance Fund (NCUSIF) by up to $250,000. This should give you a peace of mind in the event the credit union goes through a rough financial patch or unexpectedly ceases operations before you are able to withdraw your hard-earned cash.

7. Second-Chance Banking Options

Do you have a checkered banking history? You could find it difficult to open a standard checking or savings account with a traditional bank. The good news is many credit unions have second-chance banking options that don’t charge a fortune in monthly maintenance fees. Since these products aren’t always advertised to the public, you’ll have to inquire to learn more. 

Key Drawbacks

1. Barriers to Entry

Unlike banks, you can’t just walk into a credit union branch or apply online and expect to be approved for an account right away. Instead, you must meet certain qualification criteria which could entail being an employee of a particular entity or school, being a member of a certain church, or being a part of a certain community. This is referred to as a field of membership. 

Quick Note: you may also be eligible for membership through an affiliation with someone who meets the qualification criteria.

2. Far Fewer Locations

If you don’t like the idea of shared branching or would prefer to do business at a physical location near you, this could be a major drawback for you. Credit unions are typically region specific so you won’t find the same entities throughout the nation.

3. Limited Customer Support After-Hours

There’s always a line open to report lost or stolen debit and credit cards. However, you may find that most credit unions do not offer customer support after hours. 

An Overview of Banks

Banks are for-profit entities with one primary goal in mind: to roll in as much dough as possible to keep their investors or shareholders happy. So their focus is money, sometimes at the expense of the needs of their customers. 

Key Benefits

1. Vast selection of offerings and superb technology

Banks not only offer an assortment of products for both individuals and businesses, but they also improve the customer experience through technology that is unrivaled. This could be in the form of a responsive website, user-friendly app, or online learning portal to help accountholders make the most of their money or explore financial products that can help them accomplish their goals faster. 

2. Insurance Coverage

Similar to credit unions, banks also offer up to $250,000 in coverage for deposits. However, the entity providing coverage is the Federal Deposit Insurance Corporation (FDIC).

3. More Locations

If you travel often, chances are you’ve noticed the larger brick-and-mortar banks in just about every city you’ve visited. But this isn’t the case with credit unions, so you’ll have to settle for shared branching if you’re always on the go.  

4. Anyone Can Join

Bank accounts are limited to certain affiliations. If you meet the criteria required to open an account, you should be good to go. 

5. Extended Hours of Operation

While you may not have access to a banker around the clock, most banks generally have account representatives standing by to assist with your needs late into the evening and on weekends. 

Key Drawbacks

1. For-Profit Entity

This means they’re in the business of making money, and not necessarily pleasing people. It’s not unusual to find banks that exceed customer’s expectations and are as pleasant as can be, but their ultimate mission is to boost profits. And your best interests could be placed on the back burner when it’s time for major decisions to be made. 

 2. Tons of Overhead

Because banks have higher operating costs and need to turn a profit to impress shareholders, the fees are generally higher on banking products, despite lower rates of return. Furthermore, you may pay more in interest on debt products, as evidenced in the charts above. 

Which Is Best? 

It’s a matter of personal preference. Not all credit unions are a perfect fit and not all banks are out to get consumers. 

While banks operate on a much larger scale because they have more funding at their disposal, you may desire a more personal touch, which would make a credit union more appealing. Or maybe you’re searching for the lowest rates possible on debt products across the board. This may also warrant a membership with a credit union.

But if you prefer your online banking experience to be optimal and enjoy having access to a vast selection of banking products, including flexible account options, investing products, and multiple credit cards with generous rewards, then a bank may be the best choice. Or maybe you’re willing to sacrifice that personal touch for easy accessibility to a brick-and-mortar location, no matter where you travel. This is also another valid reason to go with a bank over a credit union.

Simply put: banks are best for convenience and options while credit unions are ideal for cost-savings, more competitive rates, and intimate relationships. And with a credit union, you won’t have to worry as much about profits steering the ship. 

Looking to join a particular credit union but don’t quite meet the membership criteria? You may find that a community bank is just as appealing and offers top-notch customer service. 

How to Find a Credit Union Near You

You can visit MyCreditUnion.gov or CUlookup.com to search for credit unions by address, affiliation, or name. This site is also a great resource to learn more about credit unions and compare rates. NCUA or aSmarterChoice.org are other great resources to explore all credit unions offer.

Author

Allison Martin is a syndicated financial writer, author, and Certified Financial Education Instructor (CFEI). She has written about personal finance for almost ten years and holds a master's degree in Accounting from the University of South Florida. Allison's work has been featured on The Wall Street Journal, ABC, MSN Money, Yahoo! Finance, Fox Business, Credit.com, MoneyTalksNews, Investopedia, The Simple Dollar, and a host of other reputable publications. She also travels around the nation facilitating financial literacy and business workshops to individuals from all walks of life. In her spare time, Allison enjoys traveling, cuddling up with a good book, and spending time with family. She lives in Florida with her husband and two young sons.

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