Credit Union vs. Bank: 8 Key Differences

Wells Fargo and Grow Financial
Tina Russell, Chris Zuppa/The Penny Hoarder

Managing your finances involves a lot of big decisions: How should you invest your funds? How should you structure your budget? Where the heck should you even store your money?

Credit unions and banks are similar in that they offer the standard checking accounts, savings accounts, CDs (certificates of deposit) and money market accounts, and they typically offer mortgage, auto and small-business loans.

But while the financial products are similar, there are key differences in the way banks and credit unions are structured and the benefits they offer to members.

Credit Union vs. Bank: What’s the Difference?

Banks are for-profit institutions, which means they invest the money you entrust them with and the interest they charge on loans. They use that money to grow the company and pass along dividends to the owners.

Credit unions offer a different ownership structure: They are nonprofit and member-owned, meaning dividends, though small, are passed along to every single member. Credit union members have voting power and can elect members to the board of directors to ensure they are represented in the credit union’s decisions. Credit unions also benefit from the Credit Union National Association, which lobbies at the state and federal level for credit unions.

Both credit unions and banks are typically insured through the U.S. government for up to $250,000 per deposit account — banks through the FDIC (Federal Deposit Insurance Corporation.) and credit unions through the NCUSIF (National Credit Union Share Insurance Fund), which is a part of the NCUA (National Credit Union Administration).

Each type of financial institution has its benefits and drawbacks. Here’s how credit unions and banks stack up across eight essential categories.

Summary: Credit Union vs. Bank

Criteria Credit Union Banks Winner
Interest Rates Higher interest rates Lower interest rates Credit unions
Fee Lower fees Higher fees Credit unions
Loans Better loan rates More expensive loan rates Credit unions
Rewards Typically do not offer rewards Frequently offer rewards Banks
Physical Locations Typically regional (fewer locations and ATMs, though more may be available through shared networks) Big banks offer locations all across the country with larger ATM networks Banks
Customer Satisfaction Superior customer service with a desire to help though some complaints about old tech Can feel colder at big banks, but small banks create a welcoming environment Draw, for now
Technology Behind, but catching up Advanced Draw, for now
Ease of Joining Involved; must meet specific criteria Simple Banks

1. Interest Rates

The biggest draw of credit unions as a financial institution is the higher interest rates they pay. Because credit unions are member-focused, they prioritize higher interest rates on your all your credit union accounts, including a checking account, savings account, CDs and money market account.

Banks, on the other hand — especially national banks — have high overhead and are profit-driven, so they pay lower interest rates on their bank accounts.

Winner: Credit unions

2. Fees

For the same reasons they can pay higher interest rates, credit unions can offer lower fees on their accounts than banks. In fact, many credit unions offer free checking accounts and free savings accounts, while many banks charge monthly maintenance fees to account holders.

Both banks and credit unions may also require minimum account balances, but banks are more likely to have higher overdraft fees. The higher fees at banks in combination with the lower interest rates can be a real prohibitor to financial growth.

Winner: Credit unions

Erica Chambers, right, and her daughter, Paisley Kinglade, 3, talk with banker Valentina Kurilchenko at Mount McKinley Bank in Fairbanks, Alaska.
Small and community banks, like Mount McKinley Bank in Fairbanks, Alaska, tend to rank higher with customers than big banks because of the personalized attention. Tina Russell/The Penny Hoarder

3. Loans

Credit union members can also typically get lower loan rates on car loans, mortgage loans, personal loans and small-business loans than members of national banks.

Even better for those with low credit scores? Credit union officers are willing to sit down with you and work out a loan option that fits your unique credit picture. Banks, on the other hand, calculate risk based on credit scores alone and are more likely to reject applicants with low scores.

However, banks are more likely to offer credit cards, though these typically come with higher interest rates.

Winner: Credit unions

4. Rewards

So far, it may sound like credit unions are a no-brainer. But they do have their shortcomings, a major one of which is rewards. While credit unions can offer better interest rates on accounts, lower or no fees, and better loans, banks offer better rewards programs — an easy way to make money just by opening an account or buying groceries.

Bank credit cards, for example, are more likely to offer rewards points and cash back, while bank accounts often come with sign-up bonuses. In general, credit unions lack such options.

Winner: Banks

5. Physical Locations

Large banks have brick-and-mortar locations all across the U.S., while credit unions tend to be regional. If your family moves regularly, investing with a national bank can prevent you from having to open and close accounts at every move.

Because big banks have more locations, it is also more convenient to access your funds in person and via fee-free ATMs.

Winner: Banks

6. Customer Satisfaction

As community-based, not-for-profit institutions, credit unions are generally more focused on providing a personalized, friendly customer experience.

Credit union members reported higher satisfaction than bank members in the 2018 FIS Performance Against Customer Expectations (PACE) study. The most important aspect leading to satisfaction across all age groups was trust, a good indicator that the more personalized approach of credit unions may lead to superior customer trust and, as a result, satisfaction.

But that was then and this is now. The American Customer Satisfaction Index found that credit unions slightly lagged behind banks for 2019 and 2020. The survey results suggested a leveling off is coming and that it’s the customers’ preferences that is making them pick one over the over.

Small banks, it’s worth noting, generally receive the same customer satisfaction ratings as credit unions because of their more personal vibe and one-on-one interactions.

Draw, for now

7. Technology

Generally speaking, larger banks have had the resources to lead the industry in digital transformation over the last decade. That meant better websites and mobile apps, as well as advances in card technology (e.g., chips), mobile check deposit and mobile wallets. However, as time has progressed, credit unions have caught up, creating a more level playing field with site redesigns and app updates.

In fact, just this year, US News included credit unions in the number 2 and 3 spots on its top mobile banking apps overall.

Winner: Draw, for now

8. Ease of Joining

Banks are eager to have you open an account with them because you represent a source of revenue. Credit unions can be a little more challenging to join, because credit union membership is limited to those within the “field of membership.”

Typically, your ways into a credit union’s field of membership are through your employer, your place of worship, your physical location or your membership in a specific organization. Many credit unions will also let you join if a family member meets the criteria or if you make a small charitable donation.

Winner: Banks

Credit Union or Bank: How to Choose?

Grow Financial Federal Credit Union is pictured in Tampa , Fla.
Whether you go with a bank or a credit union, you first need to decide what features are important to you. Is it customer service over technology? Or bank rewards over loan rates? Chris Zuppa/The Penny Hoarder

If you’re keeping score, credit unions and banks are tied 4-4 across the eight factors we considered above.

So how do you know if you should go with a bank or a credit union?

  • Determine what’s most important to you. Do you want to earn a little more from annual dividends and higher interest rates, or do you prefer advanced technology and convenience from your financial institutions?
  • Look for the very best of both options. The pros and cons in this article are very general. Individual banks and credit unions may diverge from the norm. You might find a bank with no fees and great loan options, or a credit union that makes it incredibly easy to join and offers a rewards-based credit card. Thoroughly research several banks and credit unions before making a decision.
  • Don’t forget online banking. Managing your finances has gone completely digital. Online banks often offer much higher interest rates than banks or credit unions. Include these in your search. (And don’t worry: Online credit unions and banks should also be backed by the National Credit Union Administration and Federal Deposit Insurance Corporation, respectively.)
  • Open multiple accounts. Nothing is stopping you from opening checking and savings accounts with a credit union and applying for a credit card from a big bank. Diversifying your finances can make things more challenging, but it can also get you the very best rates, rewards and features.

Frequently Asked Questions (FAQs)

When making the critical credit unions vs. banks decision, you might find yourself with lots of questions. You are not alone. Here are some of the most frequently asked questions people have when determining if a bank or credit union is a better fit for them:

Which is Better: Credit Union or Bank?

As we’ve seen in our comparison, both banks and credit unions have their pros and cons. IIt really comes down to what’s more important to you.

Choose a bank if you want easier access to a physical location, better mobile app technology, an easier joining experience and better rewards for signing on.

But choose a credit union if higher interest rates, lower loan costs, better customer experience and lower fees are more important to you.

Note: Both are backed by some form of federal deposit insurance.

What are the Major Advantages of Credit Unions?

Credit unions have four distinct advantages over banks:

  1. Most credit unions typically offer better APYs on checking and savings accounts.
  2. Most credit unions usually have lower or no monthly fees and minimum balance requirements.
  3. They often have lower rates on loans.
  4. Customer satisfaction is a higher priority at credit unions.

If these are the most important criteria to you when deciding between a credit union and a bank for your checking and savings accounts, go with a credit union.

What are the Disadvantages of a Credit Union?

But not everything is perfect at credit unions. They typically fall short of the experience at banks in four common areas

  1. Credit unions often have fewer physical locations, especially when traveling outside your own city.
  2. Most have some form of mobile banking services, but the apps can’t compete with those offered by banks.
  3. There are more barriers to join a credit union than there are a bank.
  4. Banks often have sign-up bonuses; credit unions offer such bonuses much less frequently.

If these are the most important criteria to you when deciding between a credit union and a bank for your checking and savings accounts, go with a bank.

But remember: Online banks can often deliver the best of both worlds, and you can typically find both online credit unions and online banks. These tend to have higher interest rates (like physical credit unions) and superior mobile apps (like brick-and-mortar banks).

Timothy Moore is a managing editor for WDW Magazine, and a freelance writer and editor covering topics on personal finance, travel, careers, education, pet care and automotive. He has worked in the field since 2012 with publications like The Penny Hoarder,, Ladders, Glassdoor, Aol and The News Wheel.