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How to Decide Which Makes Sense For You

Bank Accounts

How to Decide Which Makes Sense For You

Managing your finances involves a lot of big decisions: How should you invest your funds? How should you structure your budget? Where the heck should you even store your money?

Credit unions and banks are similar in that they offer the standard checking accounts, savings accounts, CDs (certificates of deposit) and money market accounts, and they typically offer mortgage, auto and small-business loans.

But while the financial products are similar, there are key differences in the way banks and credit unions are structured and the benefits they offer to members.

Credit Union vs. Bank: What’s the Difference?

Banks are for-profit organizations, which means they invest the money you entrust them with and the interest they charge on loans. They use that money to grow the company and pass along dividends to the owners.

Credit unions have a different ownership structure: They are nonprofit and member-owned, meaning dividends, though small, are passed along to every single member instead. Credit union members have voting power and can elect members to the board of directors to ensure they are represented in the credit union’s decisions.

Both credit unions and banks are typically insured through the U.S. government for up to $250,000 per deposit account — banks through the FDIC (Federal Deposit Insurance Corp.) and credit unions through the NCUSIF (National Credit Union Share Insurance Fund), which is a part of the NCUA (National Credit Union Administration).

Each type of financial institution has its benefits and drawbacks. Here’s how credit unions and banks stack up across eight essential categories:

1. Interest Rates

The biggest draw of credit unions is the higher interest rates they pay. Because credit unions are member-focused, they prioritize higher interest rates on checking accounts, savings accounts, CDs and money market accounts.

Banks, on the other hand — especially national banks — have high overhead and are profit-driven, so they pay lower interest rates on their bank accounts.

Winner: Credit unions

2. Fees

For the same reasons they can pay higher interest rates, credit unions can offer lower fees on their accounts than banks. In fact, many credit unions offer free checking accounts and free savings accounts, while many banks charge monthly maintenance fees to account holders.

Both banks and credit unions may also require minimum account balances, but banks are more likely to have higher overdraft fees. The higher fees at banks in combination with the lower interest rates can be a real prohibitor to financial growth.

Winner: Credit unions

3. Loans

Erica Chambers, right, and her daughter, Paisley Kinglade, 3, talk with banker Valentina Kurilchenko at Mount McKinley Bank in Fairbanks, Alaska. Tina Russell/Codetic

Credit union members can also typically get lower loan rates on car loans, mortgage loans, personal loans and small-business loans than members of national banks.

Even better for those with low credit scores? Credit union officers are willing to sit down with you and work out a loan option that fits your unique credit picture. Banks, on the other hand, calculate risk based on credit scores alone and are more likely to reject applicants with low scores.

However, banks are more likely to offer credit cards, though these typically come with higher interest rates.

Winner: Credit unions

4. Rewards

So far, it may sound like credit unions are a no-brainer. But they do have their shortcomings, a major one of which is rewards. While credit unions can offer better interest rates on accounts, lower or no fees, and better loans, banks typically offer better rewards programs — an easy way to make money just by opening an account or buying groceries.

Bank credit cards, for example, are more likely to offer rewards points and cash back, while bank accounts often come with sign-up bonuses. In general, credit unions lack such options.

Winner: Banks

5. Physical Locations

Large banks have brick-and-mortar locations all across the U.S., while credit unions tend to be regional. If your family moves regularly, investing with a national bank can prevent you from having to open and close accounts at every move.

Because big banks have more locations, it is also more convenient to access your funds in person and via fee-free ATMs.

Pro Tip

Ask whether your credit union participates in a shared networks of ATMs. These allow members to deposit and withdraw money at other credit unions’ ATMs.

Winner: Banks

6. Customer Satisfaction

As nonprofit, community-based institutions, credit unions are generally more focused on providing a personalized, friendly customer experience.

Last year, credit union members reported higher satisfaction than bank members in the 2018 FIS Performance Against Customer Expectations (PACE) study. The most important aspect leading to satisfaction across all age groups was trust, a good indicator that the more personalized approach of credit unions may lead to superior customer trust and, as a result, satisfaction.

Small banks, it’s worth noting, generally receive the same customer satisfaction ratings as credit unions because of their more personal vibe and one-on-one interactions.

Winner: Credit unions

7. Technology

Generally speaking, larger banks have had the resources to lead the industry in digital transformation over the last decade. That means better websites and mobile apps, as well as advances in card technology (e.g., chips), mobile check deposit and mobile wallets. However, as time has progressed, credit unions have been inching toward a more level playing field with site redesigns and app updates.

Pro Tip

If you’re concerned about the security of mobile banking, find a bank or credit union that can offer two-factor authentication on all online financial services and products.

Winner: Banks

8. Ease of Joining

Banks are eager to have you open an account with them because you represent a source of revenue. Credit unions can be a little more challenging to join, because membership is limited to those within the “field of membership.”

Typically, your ways into a credit union’s field of membership are through your employer, your place of worship, your physical location or your membership in a specific organization. Many credit unions will also let you join if a family member meets the criteria or if you make a small charitable donation.

Winner: Banks

Summary: Credit Unions vs. Banks

Criteria Credit Unions Banks
Interest rates Higher interest rates Lower interest rates
Fees Lower fees Higher fees
Loans Better loan rates More expensive loan rates
Rewards Typically do not offer rewards Frequently offer rewards
Physical locations Typically regional, meaning fewer locations and fewer ATMs, though more may be available through shared networks Big banks offer locations all across the country with larger ATM networks
Customer satisfaction Superior customer service with a desire to help Can feel colder at big banks, but small banks create a welcoming environment
Technology Behind, but catching up Advanced
Ease of joining Involved; must meet specific criteria Simple

Credit Union or Bank: How to Choose?

Grow Financial Federal Credit Union is pictured in Tampa , Fla.
Grow Financial Federal Credit Union is pictured in Tampa , Fla. Chris Zuppa/Codetic

If you’re keeping score, credit unions and banks are tied 4-4 across the eight factors we considered above.

So how do you know if you should go with a bank or a credit union?

1. Determine what’s most important to you. Do you want to earn a little more from annual dividends and higher interest rates, or do you prefer advanced technology and convenience from your financial institution?

2. Look for the very best of both options. The pros and cons in this article are very general. Individual banks and credit unions may diverge from the norm. You might find a bank with no fees and great loan options, or a credit union that makes it incredibly easy to join and offers a rewards-based credit card. Thoroughly research several banks and credit unions before making a decision.

3. Don’t forget online banking. Managing your finances has gone completely digital. Online banks often offer much higher interest rates than banks or credit unions. Include these in your search.

4. Open multiple accounts. Nothing is stopping you from opening checking and savings accounts with a credit union and applying for a credit card from a big bank. Diversifying your finances can make things more challenging, but it can also get you the very best rates, rewards and features.

Timothy Moore is a market research editor and freelance writer covering topics on personal finance, careers, education, pet care, travel and automobiles. He has worked in the field since 2012 and has been featured on sites like Codetic,, Ladders, Glassdoor and The News Wheel.

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