Whether you’re looking to save, borrow, or make payments, financial institutions like banks and credit unions provide essential services that make it easier to manage and grow your money. But what exactly is the difference between banks and credit unions, and is one better than the other?
By understanding the similarities and differences in how banks and credit unions operate, you can make more informed decisions about where and how to manage your money.
How Do Banks Work?
Banks are financial institutions that facilitate financial transactions, primarily by accepting deposits, extending loans, and processing payments. Traditional banks come in different shapes and sizes — some are big and nationwide, while others are smaller. Anyone in any city or state can open an account with a traditional bank, so banks are more accessible and have many convenient branch and ATM locations.
There are different categories of banks: commercial, investment, and central. Within these categories, there are further distinctions, including:
In addition, there are digital banks that operate primarily online, offering banking services without brick-and-mortar branches.
Banks are federally insured by the Federal Deposit Insurance Corporation (FDIC) and are owned by investors and shareholders. A board of directors is hired and paid to make all the bank decisions. Customers hold no voting privileges or decision-making power within the institution.
Banks offer various financial products and services, such as checking, savings, loans, and investment products. Because they are for-profit and must pay taxes to the government, one of their main purposes is to make money for their investors and stockholders and to cover their taxes and in-house operations. Banks make money primarily by charging customers interest on loans and fees for banking services and overdrafts.
How Do Credit Unions Work?
Credit unions are cooperatives that are designed to serve a particular group or neighborhood. They are member-owned, meaning that people who join credit unions are members rather than customers.
When you open an account with a credit union, you become a shareholder and part owner of the credit union. In general, members pool their money through shares to offer financial services, like loans and savings accounts, to each other.
Credit unions often have membership criteria based on location, employer, or organization, resulting in fewer branches and ATMs. However, many are more accessible now thanks to expanded membership criteria, shared branching networks, and advancements in digital banking and mobile technologies.
Credit unions are insured by the National Credit Union Administration (NCUA) and are democratically controlled by the members. Members elect their board of directors, who are chosen to represent the members in making decisions and upholding policies. This dynamic gives members decision-making power and more say in how the credit union is run. Due to these factors, credit unions are exempt from federal and most state taxes.
Credit union membership offers access to many products and services similar to what traditional banks provide. However, credit unions are not-for-profit organizations, so the profits generated by the credit union are shared with its members (after covering overhead costs). Value is returned to members through lower rates on loans, higher savings yields, and lower or non-existent fees. The more members there are depositing into a credit union, the greater these benefits are to existing members.
| Banks | Credit Unions | |
|---|---|---|
| Interest Rates | Often lower in savings | Often higher on savings |
| Fees | Generally higher | Usually lower |
| Accessibility | Nationwide | Limited access |
| Insurance | FDIC | NCUA |
| Ownership | Shareholders | Members |
| Profit Orientation | For profit | Not-for-profit |
| Goals | Generate profit for investors | Return profit sto members |
| Eligibility | Open to anyone who meets basic requirements | Specific membership criteria |
Which Is Better: Banks Or Credit Unions?
The answer is: it depends! Different things matter to different consumers. The answer generally relies on individual priorities like convenience, rates, and customer service.
Banks: Better for convenience, tech features, and business accounts
Credit Unions: Better for lower fees, personalized service, and community support
Which Should You Choose?
It’s up to you! Identify the factors that matter most to you personally — you can start by:
If you’re still unsure, here are 10 questions you can ask yourself to understand your needs better and determine which kind of financial institution will best serve them.
It’s best to choose a financial institution that you can trust, is convenient for you, and serves your short-term and long-term goals.
At BCU, we’re driven by our commitment to providing a fast, easy, secure banking experience and extraordinary service. We’re a not-for-profit, member-owned credit union dedicated to Empowering People To Discover Financial Freedom. Learn more about our membership eligibility and how you could qualify for membership.
About BCU: BCU is a not-for-profit, member-owned credit union that is fiercely dedicated to Empowering People To Discover Financial Freedom. With over $6B in assets, BCU is committed to providing a fast, easy, and secure banking experience along with extraordinary service to more than 360,000 members. The BCU field of membership includes employees and their families from Fortune 100 companies across the US and Puerto Rico. Membership is also open to individuals who live or work in Northern Illinois, Southern Wisconsin, and Puerto Rico, as well as subscribers of BCU’s wholly owned Credit Union Service Organization (CUSO), Life. Money. You.®. All BCU members enjoy lifetime access to financial services and well-being programs that inspire confidence through the brand promise “Here Today For Your Tomorrow.”
To learn more about how we can help you realize your financial dreams, visit BCU.org. For media inquiries, visit BCU.org/About-Us/Media-Relations.
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