Banks vs. Credit Unions
Which is best for your money?
Banks and credit unions offer similar products, and your money is safe in both types of institutions. So is there any difference between a bank and a credit union, and do those differences really matter to you?
- Similarities: Banks and credit unions both offer checking and savings accounts, loans, business accounts, and other services. For most banking needs, they are equivalent.
- Differences: Credit unions are customer-owned institutions, while banks are typically for-profit businesses. In some cases, that gives credit unions an advantage. But to join some credit unions, you need to qualify by meeting membership criteria.
For a basic introduction to credit unions, including ownership, the safety of your funds, and available products, see How Credit Unions Work.
Ownership: The Primary Difference
Credit unions are owned by their customers, who are also known as members. Investors own banks. Those investors might be thousands of anonymous stockholders or a few large investors, depending on the bank. You might not care or think it’s a big deal, but the ownership structure affects how these institutions operate.
The credit union ideal: Ideally, credit unions can offer better deals because they don’t have outside investors trying to maximize profits at the expense of customers. Many credit unions do just that: They pay more interest on savings and CDs, they offer free checking to everybody, and they keep loan rates low.
Exceptions to the rule: Credit unions aren’t always more affordable than banks. Community banks have priorities that are similar to those of credit unions, including serving local populations and giving back to the community.
What’s more, some credit unions act like big banks and charge the same high fees as their competitors. As not-for-profit organizations, these credit unions enjoy tax benefits that don't necessarily come back to their members.
Credit Union Eligibility
Your ability to open an account may be another significant difference between banks and credit unions.
To keep their tax-favored status, credit unions are required to limit their customer base to a group of people who share a common bond (known as the “field of membership”).
That requirement is relatively easy to meet. You may be eligible to join a credit union because of:
- Where you work or the industry you work in
- Where you attend school or worship
- The geographic area you live in
- Membership in an organization, which you may be able to satisfy online
- A family member’s eligibility
Wherever you are, there’s a good chance that there’s a credit union nearby that you’re eligible for. Some credit unions even serve members remotely or entirely online.
Is Your Money Safe?
Banks and credit unions can both keep your money safe. If an institution goes under, some or all of your money may be insured, meaning these funds will be replaced. In most cases, your account ends up at a new institution, and you have the same account number and account balance as before.
The safest insurance available comes from the U.S. government.
Under current law, both FDIC and NCUSIF coverage protect up to $250,000 per depositor per institution. If you have more than that, you need to make sure to spread your funds among different account registrations or different institutions. It's possible to have more than $250,000 insured in one place. For example, your retirement account and your individual checking account at the same institution might be counted separately.
Some credit unions are state chartered (instead of federally chartered), and they offer private insurance coverage. While this protection is helpful in many cases, private insurance is not nearly as safe as NCUSIF coverage.
Similar Product Offerings
The products available at banks and credit unions are virtually the same. For most—consumers handling personal finances and small businesses—it doesn’t matter whether you use a bank or a credit union.
For specialized services, such as trustee services, a small credit union might not be able to accommodate your needs. But it never hurts to ask—even small institutions have partnerships with service providers that can provide seamless services through a credit union.
Almost any bank or credit union offers the following products:
Both banks and credit unions offer online banking services and mobile apps. You can view accounts, make deposits with your mobile device, move money between accounts, pay bills, and more at most institutions. Occasionally, a small credit union might not offer all of the features you’re looking for, but that’s rare.
Banks and credit unions can both offer excellent customer service. They both also make mistakes and employ people who occasionally have a bad day.
At credit unions and small banks, service tends to be more personalized. With fewer customers and employees, it may be easier for everybody to get to know each other. If you visit a branch, there’s a good chance you’ll work with the same people, and you may develop relationships. Those relationships can potentially help you qualify for loans if you have less-than-perfect credit, and they may make it easier to solve problems with your accounts.
Especially at small banks and credit unions, customer service depends, in part, on the culture of the organization. Interactions may be more informal (for better or worse) and may depend on whom you’re talking to that day. At large banks, expect a more consistent but rigid experience: All employees go through the same training program and have little leeway when it comes to service issues.
Your schedule may affect your decision to work with a bank or credit union. Large banks have more resources to offer 24-hour customer service lines, and that may be helpful if you can’t talk during business hours. However, some credit unions and banks offer extended and weekend hours—as well as excellent websites. If you can do everything you need online, banking hours don’t matter.
Credit unions provide a unique offering with shared branches. If your credit union participates, you may be able to visit branches of other participating credit unions nationwide. Most services, like deposits and withdrawals, are available for free, but you may need to work with your “home” credit union on more complex issues.
Which Is Better?
Banks and credit unions can both provide robust financial services. Ultimately, it comes down to the products, services, and fees offered by the individual institution you're looking at. If ownership is not important to you, just go with whoever has the best deal and remember that you can keep multiple accounts open at both banks and credit unions.
When you need a loan, get quotes from several different sources, including at least one bank, one credit union, and one online lender. Review and compare the costs and interest rates at each institution, and ask whether you’re likely to be approved for the loan before you fill out an application.
If high rates on savings accounts are your main priority, look at online-only options for both banks and credit unions. Online banks don’t have the same overhead as bricks-and-mortar institutions, and they tend to use eye-popping interest rates to get attention.
If you decide to switch to a different bank or credit union, avoid problems when you move your money. Use a checklist for switching banks to make the process as painless as possible.
Some of the Best Banks and Credit Unions of 2018
These highly rated banks and credit unions show up on a variety of the internet's "best of 2018" lists:
- Ally Bank: A fully online bank, Ally offers more than 43,000 fee-free ATMs in its Allpoint network, 2.00 percent APY on all savings balance tiers as of November 16, 2018, and customer-centric service. To offset its branchless banking, Ally provides customers with postage-paid deposit mailers, free checks, and access to Zelle. Additional products include CDs, mortgages, car loans, and self-directed or managed-portfolio investment options.
- Chase Bank: In addition to giving you more than 15,000 ATMs and 5,000 branches to choose from, you can bank from anywhere else using the Chase Mobile app. Open a basic savings account with a $25 deposit, but note that as of November 16, 2018, the APY stands at 0.01 percent. Maintain a daily balance of at least $300 or link your savings account to one of several Chase checking accounts to avoid the monthly service fee of $5. Chase also offers access to Zelle, a hassle-free online-banking experience, and a variety of additional financial products tailored to consumers.
- Connexus Credit Union: If you don't meet the requirements to join Connexus for free, you can join by making a $5 donation to the Connexus Association, which funds scholarships and promotes financial literacy. Although Connexus has only 13 branches in a few locations, it's more than 300,000 members strong throughout the U.S., and account holders have surcharge-free access to more than 54,000 CO-OP and MoneyPass ATMs. As of October 12, 2018, all savings accounts earn a 0.25 percent APY with a $100 minimum balance, and you can get higher APYs on some types of checking and money market accounts, provided you meet certain requirements.
- Hanscom Federal Credit Union: Hanscom is based in Massachusetts, but membership is open to customers anywhere in the U.S. Aside from its 21 branches in the Boston area, you can use more than 5,000 shared branches for basic banking services, and you have access to a network of more than 100,000 surcharge-free ATMs. Hanscom offers a suite of services, including mobile and online banking, credit cards, mortgages and other types of loans, and checking and savings accounts. As of November 16, 2018, new Hanscom CU Thrive accounts can earn up to 5.00 percent APY for a limited period and subject to certain requirements.
- U.S. Bank: One of the largest banks in the United States, U.S. Bank has more than 3,000 branches and 5,300 bilingual ATMs in 40 states as of November 2018. It's also been recognized by the Ethisphere Institute as one of the world's most ethical companies of 2018. Open a Platinum Select Money Market Savings account for an APY of 0.05 percent as of November 16, 2018, if you expect your daily balance to fall under $1,500. U.S. Bank also offers an excellent digital experience, a wide selection of financial products, free accounts for students and older people, and access to Zelle.