How is a credit union different than a bank? (2024)

FAQs

How is a credit union different than a bank? ›

The main difference between the two is that banks are typically for-profit institutions while credit unions are not-for-profit and distribute their profits among their members. Credit unions also tend to serve a specific region or community.

Banks are typically for-profit entities owned by shareholders who expect to earn dividends. Credit unions, on the other hand, are not-for-profit, member-owned cooperatives that are committed to the financial success of the individuals, families, and communities they serve.

Credit unions are non-profit organizations that provide financial services to their members and are member-owned. Retail banks are for-profit organizations that provide financial services to the general public and are owned by shareholders.

Credit unions tend to offer lower rates and fees as well as more personalized customer service. However, banks may offer more variety in loans and other financial products and may have larger networks that can make banking more convenient.

Credit unions go beyond standard banking, offering lower fees on loans, higher dividend rates on accounts, and more personalized member benefits. Unlike for-profit banks focused on maximizing shareholder profits, credit unions are member-owned, non-profit financial institutions.

One question that often arises is, "Are Credit Unions Safer than Banks?" If you're looking for a short answer, you'll be happy to know that we're not making you read the whole post: Credit Unions and banks are roughly identical in safety because deposits at both are insured by the Federal government to $250,000.

One thing banks and credit unions agree on, however, is this one difference in banks and credit unions: Banks are profit-making companies owned by stockholders. Credit unions are not-for-profit businesses owned by their members.

Credit unions are not-for-profit organizations that aim to serve their members, offering them lower loan rates, higher savings rates, and personalized customer service. Conversely, banks are for-profit institutions that generate revenue for their shareholders.

Branch availability: Credit unions typically have physical branches, while online banks primarily operate online. Interest rates: Credit unions may offer higher interest rates on savings accounts, while online banks like Chime and Dave offer competitive rates on specific accounts.

What is the downside of a credit union? ›

Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.

Some credit unions cost money to join or charge annual membership dues. Fewer physical branches. Credit unions may be local or regional, with limited branches outside of your area. If you travel or move, this can make getting in-person help difficult.

Pros of credit unions

Credit union profits go back to members, who are shareholders. This enables credit unions to charge lower interest rates on loans, including mortgages, and pay higher yields on savings products, such as share certificates (the credit union equivalent of certificates of deposit).

Any income the credit union generates through interest, fees and loans is then used to fund community projects, reinvest into the organization or provide services that directly benefit members, like paying higher savings interest rates.

In addition, credit unions tend to take lower risks compared to banks. They maintain conservative lending practices and focus on member services rather than profit. Because they are not driven by the same profit motives, they may be less exposed to risky financial behaviors that can lead to instability.