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Credit Union vs. Bank: Which Is Right for You?

Banks and credit unions aren’t identical twins, but sometimes they’re dressed up in the same clothes. That makes it hard to tell them apart and even harder to know which one to choose for your banking needs. And that’s frustrating.

But if you take a closer look, you’ll see there are a few things that make credit unions and banks different. In this article, we’re whipping out the magnifying glass to take a closer look at credit unions vs. banks so you can decide which one is better for you.

Credit Union vs. Bank: What Are the Differences?

Banks and credit unions seem similar because they use the same language to talk about what they offer. But here are five key differences that set the two apart.

1. Who Owns It

Banks are for-profit and want to make money while credit unions are nonprofit and can be more focused on their members’ needs. Not only that, but members of credit unions get to vote on policy changes and leadership (among other things)—not an option at your local bank. That’s something to consider if you enjoy getting into the weeds of how your banking service runs.

2. Who Can Join It

Almost anybody can open a bank account, but with a credit union, you have to qualify for membership—even if you have a bucketload of cash. You can think of a credit union kind of like a club. Typically, credit union members have to live in a certain place, work for a certain employer or be a part of a certain group to join a credit union. This isn’t always the case, and you can typically still get in with a credit union even if you don’t meet all the qualifications. But you’ll have to pay a fee, and nobody likes fees.

3. Who Backs It

You want a bank or credit union to be insured against loss or theft of any kind. The NCUSIF (National Credit Union Share Insurance Fund) insures credit unions while the FDIC (Federal Deposit Insurance Corporation) insures banks. Both are government-backed agencies that will protect your cash. But if you come across a bank or credit union that isn’t insured, don’t put your money there. SeriouslyDon’t. That’s about as safe as putting your hard-earned cash under your mattress and posting a picture of it on Instagram.

4. The Fees It Charges

Since banks have to make money for their investors, they often charge higher fees (and more fees) than credit unions. On the flip side, many credit unions offer free checking accounts with no minimum balance while free accounts at banks usually require a larger minimum balance. Fees for errors (like a bounced check) tend to be higher at banks too.

5. The Interest It Offers

Because credit unions serve their members and not their investors, they can offer higher interest rates on savings accounts (including CDs) and lower rates on mortgages. Meanwhile, for-profit banks set lower interest rates on savings and higher interest for mortgages. That means more money in the silk-lined pockets of their fancy Italian suits.

But there’s a new kid in town. Online banks and neobanks are becoming more popular by the day. Because these banks don’t have to worry about the upkeep of a building or a parking lot, they can charge lower fees and give you better interest rates on your savings.

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Keep in mind that local banks and credit unions are unique, so they might offer special deals from time to time. Do a little research to see what they’re promoting before you choose one. But don’t join because you want a free t-shirt. If you’re not careful, that freebie could cost you hundreds of dollars in fees later on. No T-shirt is worth that much.

Benefits of Credit Unions

Banks and credit unions are different in lots of ways, including the benefits they offer. First, let’s check out the perks of a credit union membership:

  • Personalized customer service. Want to feel like an insignificant blip on the radar of time and space? Join a big corporate bank. To them, you’re just an account number that makes them money. But credit unions (and smaller regional banks) can offer a personal touch because they actually care about you. What a concept!
  • More financial literacy resources. A lot of credit unions will offer financial education, counseling or coaching. They want you to win with money. But—and this is a big but—credit unions may encourage you to get loans for your car and other big expenses. Just say no. Nada. Nope. Not going to do it. Ever. Get the point? Debt-free is the only way to win with money.
  • Free checking accounts. Credit unions can’t give you money for nothing, but the checking account might be free. And some credit unions don’t even require a minimum balance (or if they do, it’s really low), which is a good thing when you’re counting every penny.
  • Lower fees and higher savings interest rates. We touched on this earlier, but fees and interest rates are two giant differences between banks and credit unions. That extra half a percent in interest might not seem like a big deal now, but as that builds up over decades, it could be the difference between a trip to Paris, Texas, and a trip to Paris, France.
  • Community presence. Because they’re focused on their members, credit unions often do things for the people in their local communities. They might give scholarships or grants to local kids headed to college, pitch in for fundraisers, or have a presence at community events like fairs and parades. That doesn’t happen much with the big-box banks. So, if you’re community-focused, this perk might be important to you.

All of these benefit sound great—and they are—but do they make credit unions better than banks? Well, let’s look at what banks have to offer.

Benefits of Banks

We know we’ve been throwing some shade at banks in this article, but putting your money in a bank isn’t necessarily a bad option. They come with pros too.

  • Better technology. Banks usually offer better online apps, tools and website features because they can sink more money into developing them. And most banks have been offering mobile banking services for years. Credit unions typically lag on the technology front. They don’t always give you a great mobile banking experience either.
  • Convenient locations. How many credit unions do you pass on the way to work? Not many. On the other hand, you could probably find a bank within spitting distance of where you work or live. Running by the credit union will take up more of your lunch break, so if convenience and speed are huge issues for you, go with a bank. This is also a huge benefit if you travel a lot for work.
  • Larger ATM network. Banks often give you better access to the free use of ATMs in their networks, which are much larger than what credit unions can offer. Keep in mind that both credit unions and banks often charge fees for using ATMs that aren’t in their networks, so make sure you know which ones to use (or you’ll end up with a lot less money at the end of the month).

Both credit unions and banks offer perks. So choosing between them all depends on which benefits matter most to you.

Are Credit Unions Safer Than Banks?

Cybersecurity is a hot topic these days, and rightfully so. You can’t walk through a crowded room without meeting someone who’s had their bank account hacked. Cybercrime is expected to cost the world $10.5 trillion annually by 2025.1 To put that into perspective—if cybercrime was its own country, it would have the third-biggest economy in the world, right behind the U.S. and China. Yikes.

No worries, though. Your money is equally safe in both credit unions and banks. As we talked about earlier, both credit unions and banks are federally insured, which means the federal government requires financial institutions to pay back money stolen from your account if hackers break into their website.

Now, if your PIN or debit card is stolen and somebody takes out money or spends money from your account, there are some guidelines about how much money you get back. That amount is based on how soon you report the theft. The sooner the better. This goes for both banks and credit unions.

Is a Credit Union or a Bank Right for You?

If you’re looking for a concrete answer, you won’t find it here. Sorry! The truth is that nobody can tell you whether a credit union or bank is right for you. That’s a decision you have to make for yourself.

The important thing is to find a place that offers the features you need without making you pay out the wazoo for them. You have plenty of options, so don’t settle on a bank or credit union that treats you like the gum on the bottom of their shoes. Your money is too important to give to somebody who doesn’t care what happens to it. 

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Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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