Understanding the Differences Between Credit Unions vs Banks

Credit unions are known for having more flexibility in their offerings and lower rates for some financial products.

The grassroots, low-fee structure of credit unions can be appealing to consumers who want to save money on banking services. However, if you’re thinking of transitioning to a credit union, make sure you’re aware of the drawbacks, too.

If you’re looking for an institution that can act as a one-stop shop for most if not all of your financial needs, consider looking at a bank. Many banks — especially the big-name banks — can offer many different product types simply because they have more capital than a little neighborhood credit union.

Because credit unions are nonprofits, they often don’t have to worry as much about gouging their members with high fees that you might find at traditional banks. However, that’s not always the case. In fact, a March 2017 survey of 57 different rewards checking accounts from banks and credit unions listed on DepositAccounts, another LendingTree-owned company, showed that credit unions actually charged slightly higher fees than their traditional bank counterparts. Here are how the fees panned out in the survey:

Institution

Overdraft fee

Third-party ATM fee

Monthly service fee

Credit Union

$29.83

$1.15

$2.52

Bank

$28.67

$0.56

$0.96

In general, if you are looking for low fees, we recommend starting your search with a credit union. Don’t discount banks, however — as the above case shows, sometimes banks offer lower fees than credit unions, especially internet-only banks.

Credit unions are often able to pass off their profits to you in the form of higher deposit account rates because they aren’t as driven as big banks to increase profits to benefit shareholders. Indeed, in the same March survey of rewards checking accounts mentioned above, credit unions came out slightly ahead with an average interest rate of 1.99% APY. Banks, on the other hand, only offered 1.71% APY.

Although credit unions offer better interest rates in general, one area where they lag behind is in sign-up bonuses. Many big banks will offer up to $500 or more in sign-up bonuses; something you’re unlikely to see with a small credit union.

There’s no doubt about it: Credit unions do take some work getting into. Since they’re formed around a common purpose or a common segment of the population, they can afford to be picky about who they accept as members. In many cases, you can join a credit union you’re interested in simply by making a donation to a particular charity. With some credit unions, however, you don’t have this option and you might just be plain out of luck if you don’t qualify.

“Credit union membership typically requires you to open and maintain a savings account. No other accounts can be opened without the ‘membership’ savings account,” said Ken Tumin, founder of DepositAccounts, another Lending Tree company. “This savings account requirement doesn’t exist at banks.”

Banks, on the other hand, will work with almost anyone who walks in the door as long as you have the relevant account setup information, like a government-issued ID, a Social Security number etc.

Moreover, if you belong to a small local credit union and move away or travel, you can be plain out of luck for finding any branches near you. Big banks like Wells Fargo and Chase, on the other hand, are widespread in just about every community. If walking into a local branch — wherever you might end up — is most important to you, then a bank may be the way to go.

At first glance you might think credit unions would also be at a disadvantage when finding in-network ATMs due to their small size compared with banks. To get around this particular disadvantage, many credit unions have joined a network of ATM providers. One of the most popular is the CO-OP Financial Services network, and you’ve probably heard of it if you’ve ever been a member of a credit union.

If your credit union is a part of the Co-Op network, you’re eligible to use any of 30,000 different ATMs nationwide (and even in a few foreign countries) without paying any surcharge fees. Compare that with a big bank like Wells Fargo, which only offers 13,000 ATMs, or PNC Bank, which only offers 9,000 ATMs in 19 states — fewer than half of what most credit unions offer. If using ATMs is more your style, credit unions are the clear winner.

Operating hours vary widely between credit union vs banks, even within different branches. If you’ll be going in to visit a branch, the best suggestion might be to research potential banks and credit unions in your area to see which ones offer hours that will work with your schedule.

One exception is online banks, many of which offer 24/7 phone service. After all, it’s still cheaper for these banks to staff a call center to serve the entire country rather than hire someone to man a branch 24/7 in the middle of nowhere. If you don’t mind calling in to chat with a teller rather than visiting them face-to-face when you have a question, an online bank might be just the thing for you.

Because credit unions pass off their savings onto members in the form of cheaper loans and higher-yielding products, many don’t have enough cash to invest in the latest and flashiest technology like big banks.

If the latest, hottest bank technology is what you seek, consider starting your search with a bank rather than a credit union.

One of the major benefits of credit unions is that they’re owned by members — including you. When you join a credit union, you generally need to put at least $5 in some type of “share savings” account. This establishes your membership in the credit union, and it even allows you to vote in board elections. In short: You are a member, not a customer, of a credit union. As a member, you get a say in terms of who’s in charge.

Banks, on the other hand, view you as a customer, just like any other business. Banks are usually privately owned, unless it’s a publicly-traded company. With a bank, you generally get no say in how the institution is run. Banks can — and do — set policies that’ll earn their owners and shareholders money made off your back, rather than redistributing it to other banking customers like credit unions do.

If being a member and not a customer is important to you, a credit union is your best bet.

There are a lot of differences between credit unions vs banks. We recommend searching for the best financial institution based on what’s most important to you.

A bank might be best for you if you:

A credit union might be best for you if you:

Searching for only banks or credit unions can help narrow down your search, but don’t be afraid to consider other options as well. “Credit unions, especially large ones, have taken on many of the traits of banks,” said Tumin.

In other words, even though these differences generally hold true, there are often exceptions. For example, some banks offer much higher rates on their savings accounts than any credit union, or some credit unions might have unscrupulous business practices despite their nonprofit status.

But by starting your search with either credit unions or banks, you can help narrow down a seemingly infinite amount of choices to a reasonable amount and find the best financial institution for you.