Last chance to win $3,000! Enter our giveaway.

Skip to Main Content

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. It’s hard to tell them apart, so you don’t know which one to choose for your banking needs. And that’s frustrating.

Don’t panic. If you look closer, you’ll see what makes credit unions and banks different, and you can make the right decision about where to put your money. We’ll help you know what to look for.

Differences Between Credit Unions and Banks

Banks and credit unions aren’t the same, but they seem similar because they use the same language to talk about what they offer. The good news is there are enough differences between the two to tell them apart. Here are a few ways they’re different.

1. Who owns it. Banks are for-profit and want to make money. Credit unions are non-profits, so they can focus on their members’ needs. Also, members of credit unions get to vote on policy changes and leadership (among other things), but that’s not an option at your local bank. That’s something to consider if you actually enjoy getting into the weeds of how a credit union runs. (Personally, we’d rather watch the grass grow.)

Save and spend the Ramsey way. Learn more about the newest product from Ramsey!

2. Who can join it. Anybody with money can open an account at a bank. But with a credit union, you have to qualify for membership—even if you have a bucketload of cash. There are lots of ways you can become a member based on where you live or work, but chances are you can still join one if you don’t meet the qualifications. You’ll have to pay a fee, though. 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) ensures credit unions, while the FDIC (Federal Deposit Insurance Corporation) ensures banks.But both are government-backed agencies that will protect your cash—the only time Uncle Sam actually puts money into your pocket. If a bank or credit union is not insured, don’t put your money there. Seriously. Don’t. That’s about as safe as putting your hard-earned cash under your mattress and posting a picture of it on social media.

4. The fees it charges. Since banks must make money for their investors, they often charge higher fees (and more fees) than credit unions. 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 loans. Since banks are trying to make a profit, they set lower interest rates on savings and higher interest for loans. That means more money in the silk-lined pockets of their fancy Italian suits.

But there’s a new kid in town. Online banks 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 savings and loans.

Keep in mind that local banks and credit unions are unique, so they 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 tackle the credit union. Here are a few perks of membership with them:

  • 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 an account number that makes them money. Credit unions (and smaller regional banks too) 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 gonna 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 a very low one), 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 college students, or they might pitch in with fundraisers. Not so much with the big-box banks. If you’re community-focused, this perk might be important to you.

All of these benefit sound great—and they are—but credit unions aren’t perfect (neither are banks, by the way). You’ll have to decide if their perks are better than what a bank can offer.

Benefits of Banks

You can enjoy lots of benefits from a credit union, but putting your money in a bank isn’t a bad option either. They come with pluses 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 behind 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.
  • Larger ATM network. Banks often give you better access to free use of ATMs within their networks, which are much larger than what credit unions can offer. Keep in mind that both credit unions and banks often slap you silly with 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 at the end of the month.

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

Is Your Money Safer in a Credit Union or Bank?

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 has resulted in $1.5 trillion stolen from hard-working, everyday people.1  That’s equal to the GDP of Russia. Makes your head spin—and your stomach turn with anxiety.

No worries, though. Your money is equally safe in both credit unions and banks. The federal government requires financial institutions to pay back money stolen from your account if hackers breach their website.

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, of course. This goes for both banks and credit unions.

Credit Union vs Bank: Which Is Right for You?

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. 

If you’re looking for an online bank, we’ve got great news! We’re launching Gazelle, a new online banking experience that helps you attack your money goals with gazelle intensity. With unique features like no fees and no minimum balance, we created it to make your money go further, faster. Join the waitlist now for exclusive, early access to a whole new way of banking.

Ramsey Solutions

About the author

Ramsey Solutions

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.

Related Articles

A man is taking a photo of a check to deposit it in his online bank account.

Are Online Banks Safe?

Just like brick and mortar banks, online banks can get robbed. But when you do your homework, you can choose one you can trust. We’ll show you how to keep your money safe.

Ramsey Solutions Ramsey Solutions
Several debit cards are on a table with smart phone showing a banking app.

How to Choose a Bank

Choosing a bank can feel overwhelming with all the choices out there. But not all banks are created equal. We’ll help you find the one that’s right for you.

Ramsey Solutions Ramsey Solutions