Credit unions and banks offer many of the same services — checking accounts, savings accounts, personal loans and more. But they’re different in many ways too: Credit unions are nonprofit, tend to have better rates and fees and can offer localized, personal customer service, while banks are for-profit and can offer more innovative products and up-to-date technology.
So where’s the best place to put your cash?
Credit unions vs. banks: How they’re different
|Structure||For-profit institutions||Not-for-profit institutions|
|Rates and fees||Tend to pay lower interest rates and have higher fees||Tend to pay higher interest rates and have lower fees|
|Insurance on your funds||Your funds in a bank will be insured by the FDIC up to $250,000||Your funds in a credit union will be insured by the NCUA up to $250,000|
|Customer service||Less emphasis on personal interactions||Emphasizes local and personal interactions|
|Physical locations||Large 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.|
|See our picks:||Best national banks||Best credit unions|
What credit unions and banks offer
Money in banks is backed by the Federal Deposit Insurance Corp., 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.
>>MORE: What is a credit union?
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 in another association, faith or other factors.
Credit unions serve that community by providing financial products to their 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 your 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 financial institutions 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?
Updated Jan. 17, 2017.