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

Banks vs. Credit Unions: A Guide to Understanding the Difference

When it comes to many financial services—for example, checking and savings accounts, taking out loans, investing in CDs—you have a few options. The most common financial institutions are banks and credit unions. As you decide where to put your money and get loans, you might find yourself wondering about banks vs. credit unions—what’s the difference, and which is better? 

The difference between banks and credit unions boils down to how they operate, and which one you choose depends on your situation and what you are looking for. 

The Difference Between Banks and Credit Unions

Both banks and credit unions offer similar financial services. The key difference between banks and credit unions is that banks are for-profit businesses, and credit unions are nonprofit institutions that require your membership in the organization before offering services.

These differences between a bank and a credit union break down how the two types of organizations operate.


  • For-profit, may be publicly traded or privately held
  • May operate on a national or local level
  • No membership required
  • Higher fees
  • Lower savings rates
  • Offers a variety of financial products
  • Insured by the FDIC

Credit Union

  • Nonprofit, owned by members
  • May operate on a national or local level
  • Membership required to use services
  • Lower fees
  • Higher savings rates
  • Fewer financial products
  • Insured by the NCUA

Though banks and credit unions are different, you can expect to find these financial services at both types of organizations:

  • Checking and savings accounts
  • Credit cards
  • Home loans, auto loans, and small business loans
  • Money market accounts

Banks vs. Credit Unions: Pros and Cons

Which is better when it comes to a bank vs. credit union? Each type of institution offers similar services, and each has benefits and drawbacks. Let’s take a look at the pros and cons of each.

For-Profit vs Nonprofit

Credit unions are nonprofit organizations, so they don’t make a profit, and are exempt from federal taxes. They pass the savings down to their members as well, in the form of lower fees. 

Banks are highly profitable and aim to turn a profit. They may charge higher fees to make money and to offset the high taxes they pay.

Membership vs. No Membership

Anyone can apply for services at a bank, regardless of background or financial history. 

Credit unions have a requirement members must meet that may be based on their industry, religion, or community. Some credit unions are very restrictive, and others allow anyone who can pay the membership fee. The exclusivity may make credit unions less attractive, but because they are managed by a volunteer board, decisions about how to run the institution may be made with the members in mind, whereas a bank will have the interests of its owners and shareholders at heart.

Personal Service vs. Variety

Banks offer a wider variety of financial products and options, which may improve your chances at getting a loan or finding a service that fits your goals, financial background, and lifestyle. 

Some credit unions offer more personalized services, but they tend to offer fewer products and perks—some don’t even offer online banking, and they may have fewer physical branches. This may be a problem, especially when you travel or if you move.

Banks vs. Credit Unions: Which Is Better?

Both types of institutions are very similar. Generally, credit unions offer competitive rates, more personalized service, and work in the interest of their members, but are limited in what they offer. Banks offer a variety of services and products to any customer, but have higher fees and stakeholders to please. 

Ultimately, you need to evaluate each bank and credit union on its own merits. Compare fees, interest rates, product offerings, and membership requirements as you make your decision.

Interested in learning more about personal finance issues? Check out the Lift Credit blog.

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