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Credit Unions vs. Banks: The Difference and Why It Matters

Banking, Banks & Credit Unions
credit union vs bank

Like banks, credit unions offer checking accounts, savings accounts, personal loans and more. If you’re choosing between the two kinds of institutions, it’s wise to consider their differences as you figure out which aspects are most important to you.

How do credit unions and banks differ?

See where banks and credit unions shineBanksCredit unions
StructureFor-profit institutionsNot-for-profit institutions
Rates and feesTend to pay lower interest rates and have higher feesTend to pay higher interest rates and have lower fees
Insurance on your fundsYour funds in a bank will be insured by the FDIC up to $250,000Your funds in a credit union will be insured by the NCUA up to $250,000
Customer serviceLess emphasis on personal interactionsEmphasizes local and personal interactions
Physical locationsLarge national banks will have many branches across the country. Smaller banks can cover smaller regions.Credit unions will usually have fewer branches than banks, but some participate in a shared branching network that allows you to visit physical locations of a partner credit union.
Technology Banks, particularly large ones, will usually be quicker in rolling out new technologies.Although some credit unions are tech-savvy, generally credit unions can lag behind big banks in implementing new technology.

Ready to decide right now? Here are our picks for the best national banks and the best credit unions.

Why choose a credit union over a bank?

  • Credit unions are nonprofits, while banks are for-profit organizations. Instead of offering accounts to customers and large dividends to a small group of owners, as banks do, credit unions offer small dividends — and discounted loan rates, reduced fees and other benefits — to a large group of members. Credit union members are, in that sense, both customers and owners.
  • A credit union exists in principle to serve a community of people tied by a “bond of association,” which may be based on geographical region, employer, membership in another association, faith or other factors. To serve that community, a credit union provides its members with financial products on the most favorable terms it can afford to offer.
  • Both kinds of financial institutions provide similar products. Credit unions generally provide better customer service than banks do, though the ratings for smaller banks are nearly as good. Credit unions also offer higher interest rates on deposits, lower rates on loans and lower fees. Banks often adopt new technology and tools more quickly.
  • Broad ATM and branch networks are the norm for big banks; credit unions keep up with large, cooperative networks of ATMs and shared branches.

Are deposits insured?

Just as money in banks is backed by the Federal Deposit Insurance Corp., funds in credit unions are backed by the National Credit Union Administration. In both cases, the effect is the same: Deposits are insured up to $250,000 per person, per ownership category.

Next steps

Once you know which kind of financial institution you’d prefer, you can learn more about NerdWallet’s recommended credit unions and banks. Our experts weigh in on national banks as well as online-only institutions.

Need a checking account? Check out NerdWallet’s top choices

Want your money to earn more? Consider these highly rated savings accounts

Devan Goldstein is a content strategist at NerdWallet, a personal finance website. Email: dgoldstein@nerdwallet.com. Twitter: @devangoldstein.

Updated Aug. 31, 2017.