The material presented here is for educational purposes only and is not intended to be used as financial, investment, or legal advice.
What are the Differences Between a Bank and a Credit Union?
Banks and credit unions offer similar financial products and services, but there are important distinctions between the two institutions. Banks are for-profit corporations owned by investors, while credit unions are not-for-profit and member-owned. Explore the key differences between banks and credit unions.
Banks and credit unions are financial institutions that offer similar products, technologies and federal insurance. Both banks and credit unions provide consumers with a safe place for their money to grow and a means for borrowing a large amount of funds; however, there are several differences between banks and credit unions that you should understand before choosing your banking partner.
Banks are owned by investors, while credit unions are owned by their members. And while bank investors may not be depositors or borrowers there, credit union members keep their money in the credit union and enjoy voting rights in how their credit union is run. This core difference between the two types of financial institutions is reflected in the way banks and credit unions operate and in the service they provide their customers or members.
Different Interest Rates
The most recent data on interest rates of banks and credit unions shows that interest rates on bank loans are higher on average than interest rates on credit union loans.1 This means you’ll generally be paying more for the privilege of taking out a loan at a bank than you will at a credit union. The Annual Percentage Yield (APY) on savings accounts and deposits are also higher at credit unions than the national average rate at banks, which means your savings has more earning power when it’s parked at a credit union!
A Difference in Fees
Banks tend to charge higher fees for products and services than credit unions. As larger, for-profit corporations, banks have greater overhead costs that need to be passed on to their customers in the form of more and higher fees. On the flip side, credit unions can pass on their lower costs to their members by offering fewer fees and charges.
Banks are owned by investors and exist to help these investors turn a profit. Credit unions, on the other hand, are owned by their members and have no outside investors. This difference in priorities positions credit unions as institutions that care about their members’ financial well-being and strongly support local causes and community initiatives.
Differing Levels of Service
As not-for-profit institutions, credit unions tend to offer a higher level of customer service than banks. Credit union representatives will take the time to truly understand a member’s individual circumstances and work to provide the service and products that best suit the member’s needs. As larger corporations, banks will offer consistent but less tailored customer service.
Similarities Between Banks and Credit Unions
While the differences between banks and credit unions outlined above are important, there are also several similarities between both kinds of financial institutions:
- Products and services. All banks and most credit unions offer their members basic banking services, like checking accounts and savings accounts, as well as savings products like Certificates of Deposits (CDs) at a bank and Savings Certificates at a credit union. They also provide loan options, like home loans, auto loans, personal loans and more. In some cases, a credit union will offer more services than a bank.
- Online and mobile banking. Big banks and major credit unions offer customers the convenience of banking on-the-go in the form of online banking and mobile bank app technology.
- Federal insurance. Customer funds in a bank are backed by the full security of the FDIC, while the money of credit union members is federally insured by the NCUA. In both instances, up to $250,000 can be insured for each customer or member.
Banks and credit unions offer similar products and services, but there are important distinctions between the two types of financial institutions. Because credit unions are member-owned, their primary responsibility is to their members. That responsibility translates into perks like better customer service, lower/fewer fees and more desirable loan rates.
If you’re looking for a banking relationship that puts you first, look no further than your local credit union. You’ll get access to the same products, technologies and services as a bank offers, but with a lot more benefits to you and your money!