A credit union is a nonprofit financial institution that offers products and services similar to banks, such as deposit accounts and loans. However, it may have certain requirements for membership, such as living in a certain geographic area or working in a specific profession.
If you are trying to figure out the kind of financial institution that suits you best, it may be valuable to consider credit unions vs. banks.
Key Points
• Banks operate for profit, while credit unions function as nonprofits.
• Banks do not require membership, but credit unions have specific criteria to be satisfied.
• Banks typically offer a wider range of financial services, but traditional banks may charge higher fees and offer lower interest rates.
• Credit unions are known for more personalized customer service.
• Banks generally provide better technology and accessibility.
What Is a Credit Union?
Credit unions are financial institutions like banks, and they offer products you’d expect such as checking and savings accounts, loans, debit cards, checks, money orders, and more. They can provide apps and online access, just as banks do.
Credit unions may charge fewer fees, often with no minimum or a very low minimum deposit to open an account. In this way, they may be closer to online banks vs. traditional banks.
One difference between a credit union and a bank is that credit unions are run as coops, meaning each member has a stake in the business. Just like buying stock in a company, you own a small piece of the credit union when you join.
Here are some more features of credit unions:
• These organizations are typically smaller than big banks and specific to certain locations, while offering similar services.
• As nonprofits, credit unions are usually designed to serve their members, generally paying higher overall interest rates on deposits and with lower fees and penalties.
Typically, credit unions serve people only within their geographic area, and you need to be a member. Some credit unions have specific requirements for membership, but most make it easy to meet the qualifications, such as:
• Where you work or your industry
• Where you live
• Where you attend school or worship
• Which organizations you are a member of
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Pros and Cons of Banks
Here are some of the upsides and downsides of keeping your money at a bank.
Pros of Banks
Consider these benefits:
• One of the biggest overall benefits of choosing a bank, especially a major one, might be that they generally offer a larger array of financial products, including checking accounts and savings accounts, loans, and more. They can be your one-stop shopping for many financial needs.
• Banks may have extensive networks of brick-and-mortar branches, possibly both nationally and internationally.
• They usually have large ATM networks as well.
• Banks are likely to be insured by FDIC (Federal Deposit Insurance Corporation), adding a layer of security in the very rare event of a bank failure.
• Bigger banks can be quicker to adopt new technology, such as launching mobile check deposit.
Cons of Banks
In terms of the downsides:
• Traditional banks may not offer as high interest rates as online banks or credit unions do.
• Similarly, traditional banks vs. online banks and credit unions often charge higher fees.
• A big bank may not provide as specialized, personalized services as credit unions do. Credit unions may provide ATM fee reimbursement and other perks.
Pros and Cons of Credit Unions
Now, take a look at the upsides and downsides of credit unions.
Pros of Credit Unions
On the plus side, credit unions can offer the following:
• Credit unions typically offer many of the same services as banks, satisfying a range of client needs.
• They may offer higher interest rates on deposit accounts than traditional banks because profits go back to the members.
• The fees are often lower than at traditional banks, both on deposit accounts and other financial products. For instance, credit union vs. bank mortgages may have less costly fees.
• Most credit unions are insured by the National Credit Union Administration, or NCUA vs. FDIC, which helps protect funds in the very rare event of a financial institution failing.
• Credit unions are typically known for personalized service and may offer financial literacy classes and more to support their members.
Cons of Credit Unions
Now, some of the minuses:
• Membership is required. It’s possible that a person may not qualify to become a member/shareholder.
• Credit unions are typically local or regional; there may not be many options in a given area. Shared branch credit unions may, however, offer greater reach.
• They may not offer the kind of 24/7 accessibility and extensive customer service options as major banks.
• While many services are offered, they may not have all the bells and whistles that a bank offers, such as money transfer service (such as Zelle) or a next-gen app.
Recommended: Do Credit Unions Help You Build Your Credit Score?
Credit Union vs. Bank
Here’s a comparison of how credit unions vs. banks stack up.
Business Model and Pricing
Banks are for-profit enterprises while credit unions are not. Some banks may charge higher fees and interest rates to borrow money. They may have higher minimum deposit requirements as well and lower annual percentage yields (APYs) on deposit accounts.
Recommended: APY Calculator
Membership Requirements
Banks are open to all who can apply for and be approved for services. Credit unions, however, have requirements to join and become a shareholder. They might cater to members of the military or employees in a certain industry. Or they might simply charge a small fee. But there will be some requirement to be met.
Services
Banks are known for having a full array of services: various kinds of accounts, loans, and other financial products. Credit unions usually have diverse offerings but may not offer quite the breadth as they tend to be smaller institutions.
Customer Care
Credit unions may have the edge here; they are known for personalized attention and coaching to help members gain financial literacy and reach their money goals. A large bank may not be able to take such interest in each client.
Accessibility
Banks may offer many physical branches, 24/7 customer service, and a national and even international network of locations and ATMs. Credit unions are likely smaller and local, with more limited access.
Technology Tools
Larger banks tend to be more advanced in terms of technological innovation than credit unions. They may have state-of-the-art websites, apps, and services like money transfer services.
Here’s how these bank vs. credit union differences look in chart form:
| Banks | Credit Unions |
|---|---|
| A for-profit business that may charge higher fees and interest rates on loans; lower APYs on deposits, especially at traditional banks | A nonprofit that puts profits to work for members and may offer lower fees and interest rates on loans, plus higher APYs on deposits |
| No membership requirements beyond perhaps initial deposits | May need to meet certain location, employment, or other membership requirements |
| Full array of financial products and services | Basic array of financial products and services |
| May not offer intensive personalized attention | Known for personalized customer care and financial literacy coaching |
| Likely to have 24/7 access and a national or global network of branches and ATMs | May not have 24/7 access to services or a network of branches |
| Advanced technology, including apps and P2P services | May be less technologically advanced |
Finding the Right Credit Union
If you think a credit union may be the right fit for you but are unsure where to start, you could ask your coworkers or neighbors if they use one and if they like it. Since a credit union is a local financial institution, word-of-mouth can make for valuable research.
You could also search in your geographic area, making sure to check the eligibility requirements, and nationally, if you’re able to use a different local branch as part of the network. Then, joining is just like opening up any other bank account if you meet the membership credentials. Additionally, a credit union account may allow you to do most tasks online or over the phone.
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The Takeaway
A credit union is a nonprofit financial institution that offers many of the same products and services as a bank, with each account holder being a shareholder and often enjoying highly personalized service. However, credit unions may have membership requirements and may lack a major bank’s ATM network, accessibility, and tech features. Credit unions often have lower fees and higher interest rates than traditional banks, making them more similar to online banks in this realm.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Is it better to have a credit union or a bank?
Whether it’s better to have a credit union or a bank depends upon a person’s individual needs. If you need a financial institution with a national or global network of branches and ATMs, a bank might suit you best. If you are looking for personalized, local service, lower fees, and financial literacy training, a credit union might offer those features.
What is a disadvantage of a credit union?
One potential disadvantage of a credit union is that you need to qualify as a shareholder. This might mean that you need to live or work in a certain geographic area or work in a specific profession. Not everyone may qualify.
What are the biggest risks to credit unions?
The biggest risks to credit unions are similar to the biggest risks to banks. These include cyberthreats (hacking, for instance), uncertain interest rates, and the potential loss of deposits, although the latter is a very rare occurrence.
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Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
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