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.
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 a quick look at how credit unions and banks compare across a variety of criteria you may find important:
|Rates and fees|
|Safety of your funds|
What they offer
Funds in banks are backed by the Federal Deposit Insurance Corporation and funds in credit unions are backed by the National Credit Union Administration, but the effect is the same: Deposits are insured up to $250,000 per person, per ownership category. And while broad ATM and branch networks are the norm for big banks, credit unions keep up with large, cooperative networks of ATMs and shared branches.
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. But banks often adopt new technology and tools more quickly.
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?
This article was updated. It was originally published in August 2015.