What’s The Difference Between Banks & Credit Unions?

A common misconception is that the only place you can put your money is a bank. Most of the time, credit unions are not even considered. However, credit unions are widespread and may even be better for you than a bank. Although they do have some similarities, credit unions and banks differ dramatically in the way that they are insured and run. Keep reading to learn more about the differences between federal credit unions and banks.

Credit Unions vs. Banks At First Glance

For starters, a big difference between banks and credit unions are that banks are for-profit organizations. Money held in a bank is generally traded on the stock market. They’re owned by shareholders and those shareholders look to turn a profit. A depositor is someone who deposits their money at the bank. The bank’s goal is to earn as much of a return as possible on those deposits. In contrast, credit unions are member-owned and profits are shared among the owners.

They are also insured by different agencies. Banks are insured by the Federal Deposit Insurance Corporation (FDIC) and credit unions are insured by the National Credit Union Administration (NCUA). Therefore, there may be similarities in certain operations like accepting deposits and providing loans, but there are major differences in the way these institutions are run.

That’s not to say credit unions are good and commercial banks are bad. It’s more about their responsibility. Both banks and credit unions are responsible to their shareholders. It depends on who is a shareholder at each institution. A depositor is a shareholder at a credit union; however, they aren’t a shareholder at a commercial bank. Instead, it’s the people who own shares of stock who are the shareholders.

Summary

The Difference Between Banks vs. Credit Unions

 Business Structure

• Banks: Banks are for-profit. Therefore, they tend to focus heavily on commercial loans and services to earn the most money they can. Banks lend customers’ money to other people and businesses and get interest payments in return. Banks also pay interest to customers for depositing their money.
• Credit unions: Credit unions are more member oriented. Thus, they tend to provide services that their customers need — like savings and consumer loans. Also, although credit unions do make money, they share those profits with members by giving members better rates and low fees.

Eligibility Requirements

• Banks: There are no eligibility requirements. You’re eligible to open an account if you have valid forms of identification (a valid ID and social security number). And, you may need enough to cover the minimum opening deposit required to open an account. You can apply online or in person.
• Credit unions: Unlike banks, you have to be a member to engage in activities. Some things memberships are based on are having the same employer, belonging to a certain group, living in the certain locations or being related to a member. Once you qualify, you qualify for life, even if the affiliation changes.

Products & Services

• Banks: Most banks offer savings accounts, checking accounts, CDs, auto loans, mortgage loans, credit cards and more. Some banks even offer business banking products, investment vehicles like retirement accounts and college savings plans.
• Credit unions: Credit unions typically offer the same basic financial products and services as banks: checking accounts, savings accounts, credit cards, loans and more. However, smaller credit unions may have only a few financial products.

Both banks and credit unions usually offer digital banking services.

Deposit Insurance

• Banks: The FDIC insures bank deposit accounts up to $250,000 per owner.
• Credit unions: The NCUA insures federal credit union deposit accounts up to $250,000 per owner.

NCUA and FDIC coverage is the same. The United States Government backs both the NCUA and FDIC. You can confirm your desired institution’s coverage by checking with the NCUA Lookup tool or the FDIC BankFind tool. They’re separate organizations, though they’re funded in similar ways.

Geographic Locations

• Banks: Banks like Chase, Huntington, and Wells Fargo have thousands of branches and ATMs across the nation. Online-only banks that don’t have physical branches like CIT Bank and Discover are partnered with large ATM networks and offer ways to get ATM fee reimbursements.
• Credit unions: There’s generally less locations for credit unions because of costs and limitations. Sometimes they can get around this by joining ATM networks to have a greater reach. Some credit unions understand their limited geographic reach and will offer ATM rebates/reimbursements as incentives. Though, not all credit unions have a limited geographic locations. Navy Federal Credit Union has 300+ branches in 199 cities and 30 states. They’re a part of the CO-OP Network ATMs, CashPoints ATMs, and Visa PLUS System ATMs. However, NFCU is still relatively small compared to commercial banks.

Interest Rates & Fees

• Banks: Banks make their money by charging higher fees to customers. Most banks are taxed on the entity level. Therefore, account holders pay lower taxes than at a credit union. Because brick-and-mortar banks must make a profit for their shareholders, they tend to have higher bank rates. This includes higher interest rates on loans and credit cards, lower deposit rates and more fees. You’ll likely find lower rates and fees at an online-only bank, however, because online banks don’t pay for overhead like traditional banks — and they pass those savings on to customers.
• Credit unions: Credit unions don’t pay taxes at the entity level since they’re non-profit organizations and are owned by the depositors. Instead, profits are shared with their members by giving them interest. Credit unions report those on their taxes. In turn, they tend to pay higher interest rates on deposits and charge lower interest rates on loans. Credit union rates tend to be higher on deposit accounts. And they tend to have lower interest rates on loans and credit cards, as well as fewer fees.

Author’s Verdict

Now that you know the key differences between credit unions and banks, it’s time to see which one is right for you. They are both great options, but there are certain features that might make one the better choice for you.

To recap, banks are for-profit institutions insured by the FDIC. You’re probably more likely to value a bank if your priorities lie with available products and services and availability of ATM’s and banks. If those features are what appeal to you, sign up for a bank!

On the other hand, a credit union is democratically governed, non-profit, and insured by the NCUA. You are more likely to enjoy a credit union if you’re looking more for customer service, checking and saving account fees and interest rates, auto loan and mortgage rates, and finally credit card rates.

Both banks and federal credit unions are great institutions that will get the job don. However, it’s up to you to decide which one suits your needs best. Both banks and credit unions offer promotions where you can earn bonus cash, credits, and more. Thus, you may want to look into those first. In addition, if you’re interested in a savings account, we have a list of banks and credit unions that offer the best savings account rates and the best CD rates you can find locally and nationwide.