Financial Health

What’s the Difference Between a Credit Union and a Bank?

In most aspects of personal finance and money management, we’re left to discover things ourselves. Schools offer a limited curriculum, and parents don’t always have the right ideas about these topics, despite their best intentions to help.

That’s why it’s so helpful to go back to basics now and then, making sense of important terms and concepts that help us navigate the world of money.

A perfect example is learning the difference between a credit union and a bank, two institutions that share key similarities but also several distinctions.

Knowing the pros and cons of each one - and how to utilize their services best - will give you the edge in your efforts to secure loans, access funds, chip away at debt, and more. 

Let’s highlight all the must-know info about both credit unions and banks, complete with their pros, cons, and quirks that will help you achieve those financial goals,

What Is a Credit Union?

Let’s touch on the basics first. A credit union is a financial institution that offers services to members such as checking accounts, savings accounts, insurance for member funds, physical branches, and ATMs.

There are currently more than 5,100 federally insured credit unions in the United States, typically organized around a specific set of goals and serving a particular demographic of working or retired individuals.

Navy Federal Credit Union, for example, has more than 10 million members and tens of billions in assets. However, most credit unions are small, primarily due to their structure and unique mission statements.

How Is a Credit Union Different Than a Bank?

The main distinction is that credit unions are not-for-profit institutions owned cooperatively by their members. This means that members receive any profits the organization generates through better interest rates, member benefits, educational programs, and customer service.

On the other hand, banks are traditionally profit-driven, meaning they’re operated with strict business principles and seek to maximize results for shareholders - not necessarily the customers.

This isn’t to say that banks are unethical or that you should avoid them. However, this fundamental distinction - the structure and ownership of a credit union - helps us get a clear vision of how these organizations work and the advantages they provide.

As we dig deeper, we see more differences between credit unions and banks. Credit unions often specifically serve members of a particular community or contingent of workers, such as retired military, religious organization members, or multi-generational families.

You’ll find that some credit unions require you to be “grandfathered” into membership, while others have less strict limitations on who can join. This is rarely the case with banks, which will take you on as a member if you have the cash. 

With that said, eligibility requirements at some banks can be steep, depending on factors like exclusivity and service features.

What Are the Pros and Cons of Credit Unions?

Remember that every credit union will bring unique services and perks to its members, and it’s worth investigating these details during your research process. Only then can you make the best decision for your financial needs.

Pros of Credit Unions

When you become a credit union member, you gain access to many great features and services that can dramatically improve your financial situation over time.

  • Favorable interest rates: Most notable are the favorable interest rates that credit unions tend to offer members, which can be highly advantageous at any stage of your finance journey. For example, the average 60-month car loan rate was under 3% among credit unions, while the average bank offered rates close to 5%.
  • Better account rates: Additionally, deposit account rates are usually more conducive to building wealth in everyday accounts with credit unions, which can help encourage savings and help you piece together that all-important down payment. 
  • Better mortgage and business loans: Mortgages and business loans may offer similar benefits, and credit unions are often more sympathetic to individuals rather than strictly running the numbers calculatingly.
  • Customer service is top-notch: You get a personalized experience that most commercial banks simply cannot offer. There are countless stories of elderly folks, single parents, and less fortunate individuals who get special treatment and guidance from credit unions when they need it most.

Overall, credit unions offer a more old-school approach to financial services that many people find inviting and attractive. The upsides of credit unions are hard to deny, especially if you’re looking to maximize your savings rates, get the best loans available, and enjoy the many customer service perks these institutions are known for.

Cons of Credit Unions

While credit unions offer plenty of advantages, they also come with downsides.

  • Can be inconvenient: The most glaring negative of a credit union is the lack of access and convenience that you might expect from an institution in this day and age, chiefly concerning technology. Since credit unions are non-profit organizations, their focus tends to be on customer service and creating opportunities for members rather than keeping up with the Joneses in terms of tech.
  • Lack of fintech perks: Credit union members may miss out on some of the perks of mobile banking and the vast digital infrastructure that leading fintech services now offer.
  • Credits unions can be smaller than banks: Some limitations also cross over into the physical world. Most credit unions are comparatively small and therefore have limited reach with regional branches and ATMs. This may put a hitch in your plans if you travel frequently and require full access to time-sensitive financial services on the go.

More broadly, credit unions are not as popular or widespread as they once were, catering to an older generation of people and not always offering robust member benefits. While some critics say the golden age of credit unions is over, we’ll leave that to you to decide.

What Are the Pros and Cons of Banks

Banks have unique offerings based on size, scope, customer service policies, technology, and more.

Let’s talk about the pros and cons of banks, but remember that every institution has different policies and features that will factor into your final decision.

Pros of Banks

These upsides apply to the industry’s heavy hitters like Chase and Bank of America and up-and-coming mobile banking services like Chime and Varo that are blazing new trails in the fintech space.

  • Latest tech: With modern banks, you’re getting the latest technological innovations, a vast network of branches, and increasingly favorable rates and incentives that make these offers more attractive than ever.
  • Better rates and services: While personalized customer service may not be top-tier, banks make up for that with better rates, lightning-fast transfers, and a level of financial visibility that credit unions can only dream about. Let’s not overlook the variety of banking services available, either.
  • Reliability: While Gen Z and Millennials might gravitate towards the lightweight mobile banks, steadfast Baby Boomers might find that regional banks offer that extra level of care they seek during retirement. Plus, there’s always the safe bet of the bunch: reliable big banks with no frills.

In terms of pure convenience, access, and technological advancement, there’s no outcompeting today’s banks, especially those that embrace an agile business model with low overhead and maximum utility.

Cons of Banks

Even the best banks come with cons, and customers should be aware of them when browsing options.

  • Higher rates: Anyone who has dealt with modern banks can attest that the rates offered are not always the most advantageous for the customers. Remember, these institutions' bottom line is a top priority; they are masters of risk management first and foremost.
  • Lower mortgages and loans allowed: This isn’t to say that you can’t find good rates or that you can’t build a good reputation with a regional bank over time. Don’t expect a very generous loan or mortgage rate if you’re just starting your financial journey.
  • So-so customer service: Customer service also tends to fall short with larger national banks, and you can expect to find yourself in a call center labyrinth at some point in your customer experience. Digital automation has come a long way, but it will likely take longer to reach a satisfactory conclusion to your query.

Lastly, you must research small startup banking services before you go all-in. Avoid offers that seem too good to be true. Play it safe, and choose from hand-picked partners selected for you by Steady to ensure you stay protected as a customer. 

How To Decide Whether a Bank or Credit Union is Better for You

With a solid foundation of info, you can now make an informed decision when choosing between a credit union and a bank.

It starts with identifying your priorities, what matters most to you as a customer, and what you expect from your financial institution.

Do you want the most agile, minimalist banking experience on your smartphone? Check out one of the innovative new mobile banks. Is your goal to build a connection with a hometown organization you can trust for the long haul and get the best possible rates? Your local credit union will be the wise option.

At Steady, we’ve researched to simplify the process and narrow down the best picks for you.

Don’t forget that there is also a spectrum of services and features in both credit union and bank categories - it’s never a cut-and-dry distinction between the two, so read the fine print always. 

What To Do Next

Learning about different financial institutions, how they’re structured, and what they offer is the first step to mastering your finances and leveling up.

Once you’ve determined whether a credit union or bank is a better fit for your lifestyle, it’s time to connect with an organization that checks all the most important boxes.

Let Steady be your gateway to finding the best match, with all the relevant info and ways to earn incentives that put cash in your pocket faster. With so many great options, it’s just a matter of time before you find your ideal arrangement.


Pros and Cons of Credit Unions and Banks | US News

Credit Unions vs. Banks | GoBankingRates

Largest US Credit Unions | Segmint