Credit Unions vs. Banks: What's the Difference?

By Guest on 31 August 2011 (Updated 8 July 2014) 22 comments
Photo: fotoipsak

If you don't belong to a credit union — or even if you do — you may not be aware of the many ways in which they differ from banks. Although banks and credit unions both provide similar services, each offers different types of benefits for account holders and borrowers. Let's take a look at the characteristics of a credit union versus a bank and learn how to determine which one is best for you. (See also: The Benefits and Drawbacks of Credit Unions)

Credit Unions 101

A credit union is a cooperative financial institution in which individuals pool their money to provide loans and services to other members. In the United States, credit unions are nonprofit entities, and their cooperative structure is designed to ensure fair dealing. Additionally, anyone who belongs to a credit union must first qualify to join under a particular institution's field of membership.

Why Join a CU?

Because the users and members of the cooperative are the same people, the idea behind credit unions is that they provide services that are tailored to the people who use them, rather than to driving profit for the institution. In addition, each member of a credit union, no matter how small his or her holdings, often has a voting share in the credit union's affairs. This ensures the organization's policies match up with what members really want. In practice, credit unions offer the same services as banks and are subject to federal regulations that are similar to those under which banks operate. However, because of the democratic organization of these institutions, they are often able to offer higher interest rates and lower fees than their corporate peers. Also, because credit unions are smaller — and often local — institutions, they may offer more personal customer service.

The Downsides to Credit Unions

That said, there are also drawbacks to banking with a credit union, which are largely related to these institutions' smaller size. This includes fewer branches and ATMs, as well as a lack of or lower-quality online banking options. In addition, although service at a credit union may be more personal, it will not be as robust as the 24-hour customer service many big banks provide.

The Big Banks

While it's important to compare rates and fees between banks and credit unions when you're looking to take out a loan or open a new account, what banks can provide over credit unions is more...of everything. Banks are often much larger than credit unions, which allows them to offer much more variety to account holders. Generally, a larger chain or national bank will have more loan and account options. Plus, virtually all major banks offer excellent online banking and investment options, and as mentioned previously, a very robust customer service department that can be reached at any time of the day.

Are Credit Unions or Banks Better?

If you're looking for a loan or want to buy a certificate of deposit, it definitely makes sense to shop around and include credit unions in your search. Whether you settle on a bank or a credit union depends on your needs and what you value. For those who are looking for a checking and savings account, a few money market investments and a simple loan or two, a credit union may suit them just fine. Those with more high-powered portfolios may require the horsepower a bigger bank can provide, like these high-yield savings and money market accounts from Capital One 360.

This is a guest post from NewYorkBankingRates.com, a site that compares interest rates from New York banks and credit unions to provide residents with the best financial products in the city.

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Meg Favreau's picture

I belonged to a credit union in college, and there are things I definitely miss about it. I've moved a lot in the last year, though, and I can say that one nice thing about having an account with a big bank is not needing to worry about switching institutions every time I've changed homes.

Do you belong to a credit union or a bank? What do you prefer?

Guest's picture
Guest

Since credit unions are all part of the same national network, moving should not be a problem at all. My credit union reimburses me bank fees on ATM withdrawals, so essentially I have access to ALL ATMs in the USA at no fee, unlike banks who nickel and dime you to death.

Guest's picture
Weimom

I belong to 2 credit unions (military and aviation) and they provide the best services with the best interest rates and options. Many credit unions now belong to a network that allows its members to utilize other credit unions' ATMs and/or ATMs at 7-Eleven stores (everywhere), Walgreens, etc. I belong to 1 big bank which provides me with quick assess to cash deposits and withdrawals that credit unions (depending on location) may not be able to offer. However, credit unions often have waive online transfer fees and have less expensive wire transfer fees. I would say go with one of each if you are able to to take advantage of different services.

Guest's picture
Erika

I opened my first checking account with my college credit union. 9 of the 15 years that I've had the account, I've lived out of state. They have first-rate online banking services. I can use the ATM at most other credit unions all around the US. I always get a person when I call them on the phone. (And, I know what time it is for that person, and what the weather's like, and probably which branch they are in, and we talk about the "inside joke" I've left in my CU file before we do the transaction... so I feel good about it too :-) I have an IRA, a Roth IRA, CDs, a money market, and all the basic banking accounts.

Their mortgage agent wisely talked me out of buying a house at the wrong time in my life, saving me $$$ and a huge hassle. (Not to mention buying at the wrong time for the market.)

My only regret is that they only do mortgages in one state, and I'll probably buy someplace else so will have to find a different credit union. Also, my Health Savings Account is with a different institution (for which the fees are paid by my health plan, or I'd be switching in a minute).

Guest's picture
Guest

I use a Credit Union member and I don't remember any extra fees being put on me, I can use any ATM and I got $15.00 check from them at the end of the year.

$15.00 bonus a year might not be much, but getting paid sure beats paying them, in fees.

Of course, my needs are simple, but still..

Guest's picture
Robert

I belong to several Credit Unions as well as a bank. I belong to Navy Federal Credit Union and now that they have expanded to cover all the branches of the military they are located near almost all military bases and even before they opened a branch near me I could do almost anything I could do in a bank over the phone or net. They have 24-7 phone support. They also have better rates/dividends than any bank I have compared them to. I have Arvest bank because they are open 8am to 8pm for easy access to a person to person interaction, as well as a safety deposit box that was included as part of my membership.

Guest's picture
Guest

Here is an interesting video. This seems to be targeted towards Generation Y, which would be the incoming users for credit unions. Check it out!

http://www.youtube.com/watch?v=RWN0PAsJFAs

Guest's picture
jada

IM DOING SOME WORK IN MY CLASS ON THIS AND IM 9TH GRADE TRYIN TO SEE WITCH IS BETTER

Guest's picture
Guest

You mean "which" is better. See a dictionary to figure out the difference between "which" and "witch."

Guest's picture
Guest

How clever to start so young, I wish I had. Keep up the great effort.

Guest's picture
Ryan

Jada...great job on starting young. High schools should offer (or require) a class on being financially responsible when it comes to credit cards, debt, banks vs. credit unions, etc. Consider yourself ahead of the curve.

Guest's picture
Guest

But are credit unions FDIC insured....?

Guest's picture
Guest

The National Credit Union Administration (NCUA) is the independent agency that administers the National Credit Union Share Insurance Fund (NCUSIF). Like the FDIC's Deposit Insurance Fund, the NCUSIF is a federal insurance fund backed by the full faith and credit of the United States government.

Guest's picture
Guest

The National Credit Union Administration (NCUA) is the independent agency that administers the National Credit Union Share Insurance Fund (NCUSIF). Like the FDIC's Deposit Insurance Fund, the NCUSIF is a federal insurance fund backed by the full faith and credit of the United States government.

Guest's picture
NJFCU

Basing on the picture you've painted for us, it really all depends on your needs for which one is better. Additionally though, for credit union, the best part is that you as a member will have a say in how you believe is best to manage the money as investments.

Guest's picture
Average Joe

I've Had accounts at both and I'll choose Credit Union 99% of the time. My reasoning is mostly because my needs are simple ,

Banks Pro's & Con's (Based off of Well's Fargo,Zions Bank & Washington first)
Pro's:
1. I have seen better % rates on Savings accounts
2. at-least 2x as many in the US and abroad
3. usually 2 to 3 times more ATM's of your bank in your city
4. More Options with types of loans
5. at the bigger banks usually a 24/7 # to speak with someone

Con's: (Based off of Well's Fargo,Zions Bank & Washington first)
1. A Ton more Fee's for multiple uses at banks
2. ATM Fee's if you don't use your bank's ATM (No Co-Op network uses as far as I'm aware of)
3. No ,say or vote on what directions / changes on what your bank does
4. I have noticed higher % rates on loans than CU's (personal observation)
5. ATM's fee's seem to be much higher.
6. Checking and Savings usually require a much higher Minimum

CU Pro's: (Based off of Delta Community CU, American First CU,Mountain Eagle CU )
1. Free Checking/savings w
2. Co-Op networking, meaning you can use other CU Branches to do your banking needs for No Fee!
3.You have a Say on Changes that happen to your CU
4. Loan Rates seem to be Lower on multiple types of loans (just personal observations)
5. Just a personal observation and I know some can argue but I think CU employee's Generally seem nicer and happier to help where as Bank Employee's it seems like your a # and less personal
6. less restrictions on Minimum balances on savings and checking accounts
7. Majority of Credit Unions are going Co-Op and that means you can goto any Co-Op ATM and they have no Fee's ( In 10yrs I have only had 1 CU Atm charge me )

CU Con's: (Based off of Delta Community CU, American First CU,Mountain Eagle CU )
1. Less % rate of return in savings accounts
2. generally no 24/7 someone to call
3. not as abundant amount of branches (though the Co-Op network has become very big and is starting to turn this around))
4. less choices of loan types.

This is just my experiences with what I have personally used, there are Pro's and Con's to both though I do personally feel CU's overall are better for the General public. hope some of this helps :)

Guest's picture

I know I got started into a bank account from my college days. Since then I have thought about changing to a credit union but never made the change. My college was an urban colleges and banks were every where. Credit Unions were not. Besides I cared about access to ATMs and not worry about how much interest I made or fees I paid. However if there was a credit union at my college, knowing what I know now, I would have set up my account there.

Guest's picture
Jim

Depending on your area, you can apply online for everything. And my ATM fees are reimbursed by my credit union so I have a choice of every ATM in the country. Not bad. :)

Google search for a credit union in your area and then apply online. More benefits than banks, which gouge for every penny.

Guest's picture
JonathanF

I am new to this idea of going with a credit union over a bank, and what is driving my concern is the deteriorating economy - there is more and more talk of the possibility of economic collapse, and all of the top banks have unbelievably high exposure to derivatives. But what I want to know is, if the economy does collapse, will credit unions be a much safer place to be? Was just watching a Gerald Celente video - he recommends credit unions.

Guest's picture
GuestLisa

This article comes off a bit bias. It appears to be more bank and doesnt even list any "downfalls" for banks versus the "downfalls" for Credit Unions. Well, I'd choose the C.U. anyday over monthly fees and ridiculous charges.

Guest's picture
guest

Can a credit union makes business loans based more on a persons character a bank? Meaning being much more options to be flexible ?

Guest's picture
Guest

The fewer branches and ATMs comment is wrong.

Almost all credit unions belong to a network of ATMs that includes most 7-Eleven ATMs (even overseas 7-Elevens!), so as a credit union member I have access to more ATMs without extra frees than any bank.

Also, many credit union branches are share branches where I can do almost all of the same transactions as my local credit union. That means I have access to roughly the same number of branches as Bank of America.

30,000 ATMS and 5,000+ shared branches:
http://co-opatm.org/