When you're deciding where to open your financial accounts, you may wonder: Should I go with a bank or a credit union? Today there are fewer differences between the two in terms of convenience, especially if the credit union you're considering has good online services and is a member of a co-op that provides access to branches and ATMs nationwide. Both banks and credit unions also offer equal safety for your money via federal government-backed insurance.

As you look into banks and credit unions, consider what matters to you most—for example, a slew of ATMs or the lowest fees on a checking account. We've laid out the nine key differences that will help inform your choice.

Key Takeaways

  • Credit unions tend to have lower fees and better interest rates on savings accounts and loans, while banks' mobile apps and online technology tend to be more advanced.
  • Banks often have more branches and ATMs nationwide. Some credit unions offset this advantage with a CO-OP Shared Branch network of 5,600 branches and more than 54,000 surcharge-free ATMs.
  • Credit unions are known for providing better customer service, while large national banks tend to have stricter rules and less flexibility in decision-making.

1. Ownership

Banks are owned by investors and operate as for-profit institutions. Credit unions are not-for-profit and are owned by their members. Banks must make a profit for their investors. Credit unions have no need to make a profit for their members. Instead, their goal is to keep their fees low, to set their interest rates on savings as high as possible, and to set their interest rates on loans as low as possible.

2. Membership

Anyone is eligible to open an account with a bank. Credit unions must limit their customer base to what’s called a “field of membership.” This can include a company where people work, a school or place of worship, a geographic area, or a membership in an organization. 

National credit unions get creative about how to increase membership eligibility. Connexus, for example, enables membership through its association, which people can join for $5. 

Members of credit unions also have the ability to vote on credit union policies and participate in decisions; customers of a bank do not have this ability.

3. Product Offerings

Credit unions tend to offer fewer products than banks, especially in the commercial banking arena, including business credit cards and business loans. Credit unions—which tend to be considerably smaller than banks—also typically offer fewer investment products.

4. Interest Rates

When you're looking for a loan of any type, it’s always best to check both your local banks and credit unions. In many cases, you'll find that credit unions offer the lowest interest rates on loans, such as car loans and mortgages. As for interest rates on savings products, you’ll probably find that credit unions offer higher rates than banks. It's also worth checking online banks to see how their often-lower rates compare to those of the other lenders you're considering.

The National Credit Union Administration, using data from S&P Global Market Intelligence, regularly compares interest rates for savings deposits and loans for banks versus credit unions. Its March 2020 table shows that credit unions posted higher interest rates on CDs, and money market and savings accounts—and lower interest rates on most home and car loans. The national credit union Connexus has a reputation for offering the lowest loan rates.  

5. Fees

Since banks must make money for their investors, they tend to have more and higher fees than credit unions. Many credit unions offer checking accounts with no minimum balance and no monthly service charges. Free checking accounts at banks usually come with stipulations, such as minimum account balances or requirements for additional account types (like mortgages or credit cards). The fees for errors, such as a bounced check or overdrafts, tend to be higher at banks, too—especially if you don't qualify for a premium account. Again, when you're researching banking fees, it's important to compare both online banks with brick-and-mortar firms.

6. Online Services and Technology

Large banks tend to have more money to spend on technology, and as a result, they are known for adding technical services much more quickly than credit unions. Mobile banking services are likely to be far more advanced at banks. But it's possible to find national credit unions with digital banking options that provide most of the services you need. If technology and online banking are keys to your choice, make a list of your must-have services and ask for a demonstration of them before opening an account at a bank or credit union.

7. Safekeeping Your Money

Accounts in banks and credit unions are insured up to $250,000. Banks are insured by the Federal Deposit Insurance Corp (FDIC), and credit unions are insured by the National Credit Union Administration.   If you have more than $250,000 to deposit, talk with the customer service department at the institution you’ve chosen and inquire about the variety of account types you can use to increase your access to insurance. A checking account and a savings account, for example, will each qualify for insurance up to $250,000.

Accounts in banks and credit unions are insured up to $250,000, so there is no need to worry about the safety of your money.

8. Customer Service

Larger banks may subject you to bad customer service. One notorious case: In 2018, Wells Fargo was fined $575 million for opening unauthorized accounts and charging consumers for unnecessary auto insurance and mortgage fees. While this may have been a particularly bad actor among banks, many big banks are inflexible in their customer service because rules are not set locally. Rather, they are enforced by national boards of directors and executive leadership. 

Credit unions look to serve their membership and tend to be more flexible when it comes to customer needs. Votes regarding customer service issues are influenced by the account owners—the members of the credit union—who have equal voting rights.

Also, credit union membership is smaller and better known to local branches, which helps facilitate establishing relationships with branch managers and loan decision-makers. That can make it easier to get the loan you need. Of course, some banks make consumer outreach a goal so you may also find good personal service at a local bank branch.

9. Locations

Major banks typically have more locations to provide direct service to customers. Credit unions tend to be in much smaller towns and cities, with fewer branches. To offset this disadvantage, credit unions have formed a CO-OP Shared Branch network with more than 5,600 shared branches nationwide. Connexus, for example, allows you to search for branches online. In addition, it offers more than 54,000 surcharge-free ATMs through the CO-OP or MoneyPass in order to provide more competitive customer service nationwide.

The Bottom Line

Credit unions will likely offer you lower-cost services and better interest rate options for both loans and deposits. Banks will likely provide more services and products, as well as more advanced technologies. You'll need to take factors like these into consideration in deciding which type of institution will best serve your needs.