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Credit Unions vs. Banks

March 22, 2016 Banking, Banks & Credit Unions
credit union vs bank

The range of options for consumers seeking financial services has broadened significantly in recent years, with online-only banks, robo-advisors and crowdfunding taking most of the headlines.

But one of the oldest and most basic features of the landscape of banking institutions is often poorly understood, namely, the difference between credit unions and banks.

At-a-glance comparison

While the two kinds of institutions provide many similar consumer products and services, their delivery of those products and services can differ significantly.

Here’s how credit unions and banks compare across a variety of criteria that you may find important:

Rates and fees
Winner: Credit unions

On average, credit unions offer lower loan rates, higher interest rates and lower fees than banks do. Some online banks do better in these areas than either traditional banks or credit unions.
Customer service
Winner: Credit unions

Credit unions tend to beat out the big banks, at least, on customer service. Between 2010 and 2015, credit unions have consistently ranked higher than banks in measurements by the American Customer Service Index. In some cases, though, banks may have better options, such as Twitter support and extended call-center hours.
Physical locations
Winner: Too close to call

Because many credit unions have small territories, it’s easier to find banks with huge numbers of branches and ATMs across the U.S. However, many credit unions have compensated for this disadvantage by joining the CO-OP network of credit unions, which allows their members to access about 30,000 ATMs and 5,000 branches, in many cases with no fees.
Winner: Banks

Credit unions have a reputation for lagging in consumer technology, so those looking to use early or best-in-class versions of options such as online banking, mobile banking apps, Apple Pay and remote check deposit may be happier with banks.
International travel
Winner: Banks

The very biggest banks likely have more of their own (fee-free) ATMs abroad, while credit unions tend to have lower fees for international ATMs. A few online-only banks have no fees at all for international ATMs or debit transactions.
Safety of your funds
Winner: Everybody

Both kinds of institutions are usually federally insured — banks by the FDIC and credit unions by the NCUA. The details of the insurance are functionally identical.
Community impact
Winner: Too close to call

Credit unions often more directly affect their members’ local communities, though some banks have large and respectable philanthropic wings.

Comparing any two institutions may of course reveal exceptions to these general patterns.

The biggest difference: What happens to profits

So what is a credit union, anyway? Although both kinds of financial institutions provide similar services to consumers, credit unions are nonprofits, while banks are for-profit organizations.

That single difference is the foundation for most of the others. When a company exists primarily to generate profit, its core operations are organized around maximizing that profit for return to its ownership.

A credit union, though, exists in principle to serve a community of people tied by a “bond of association,” which may be based on geographical region, employer, membership to another association, faith or other factors.

Credit unions serve that community by providing financial services products for its members with the most favorable terms they can afford to offer. 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.

Making the choice

Now that you know the major differences between banks and credit unions, you may feel ready to look for your best option. Here’s one path you can take:

  • Identify your values: What matters to you the most in the institution you choose? Great rates? A modern technological experience? Top-notch customer service? Make a prioritized list of what you’re looking for.
  • Find your top contenders: You may already have a credit union in mind; if not, you might consider some of NerdWallet’s favorites. We also have objective recommendations for banks of all kinds, including big national banks and online-only institutions. Finally, you can compare checking and savings accounts for yourself.
  • Narrow the list: Which banks meet your top criteria? Among those, do some perform better in other areas that you could see yourself valuing in the future? Do any negative aspects change your mind about what matters to you?

Devan Goldstein is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @devan_.

This article was updated. It was originally published in August 2015.

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