Credit union vs. bank: Know the key differences

When it comes to personal finance, it may feel like you're expected to know things that no one has ever taught you, like the difference between a credit union and a bank or how a stock differs from a bond. Knowing these seemingly small differences can help you find ways to make your money work harder for you. Still, it can feel tricky to wrap your mind around. If you're wondering, "What is a credit union?" vs "What is a bank?" we've got you covered. Keep reading to learn the key differences between a credit union vs. a bank.

Ownership 🔏

Ownership is one major factor that separates credit unions from banks. With different owners come different responsibilities.

Members 🙌

Credit unions are owned by their members. When you become a member of a credit union, you keep a small deposit to buy a share in the credit union. Historically, many credit unions were started by and for people in one line of work, like ironworkers or electricians. Today, many credit unions are open to people regardless of their vocation. The credit union answers to its members, shaping how it does business. For this reason, the credit union's mission is not focused on turning a profit but on providing financial services to its members.

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Shareholders 📈

On the other hand, banks are owned not by members but by shareholders. When shareholders own a company, the company's leadership has a legal responsibility to seek profits for the shareholders. This shapes how banks do business in several ways.

Membership 👥

One of the key differences between credit unions and banks centers around the question of membership since a credit union may have requirements that a traditional bank would not. 

Credit unions have membership requirements 

Many credit unions were started by local communities for specific groups of people. So, even today, credit unions may limit who can join. Eligibility requirements can be restricted to people in a certain line of work or part of the country. For instance, some credit unions may only be open to members of a particular professional union or employer. Other credit unions may lack these professional restrictions but reserve membership for people in a certain geographic region. 

Banks are open to (almost) anyone 

Banks usually have fewer eligibility requirements, so more folks have the option to open an account. You will need to meet the standard requirements for doing business, such as having a government-issued ID proving that you meet the minimum age requirements for your local laws and regulations. But beyond that, banks aren't too picky about who they accept money from.

Services & Fees 💰

For both banks and credit unions, services will be similar, but fees can and do vary greatly.

Similarities

Credit unions and banks have some important things in common. Both banks and credit unions offer basic financial services. This includes things like savings and checking accounts, personal loans, and often mortgages. Both may offer additional services like notary public or retirement planning. Either may provide online banking. However, credit unions usually have a scaled-down set of offerings compared to banks, so don't be surprised if your bank has a credit card or investment opportunities that are unavailable at the credit union. The cool new "fintech" app may not be featured at your credit union. 

Differences

Credit unions and banks do have some significant distinctions. For instance, credit unions may have fewer branch locations in a smaller area. Likewise, a credit union may not have as many ATMs, so expect to pay fees if you visit "out of network" ATMs. 

Still, the most significant difference between a credit union and a bank involves fees. For instance, banks tend to have higher fees for low balances or overdrafting your account. Likewise, credit unions tend to have lower interest rates on borrowed money and higher interest rates on money you save with them.

Insurance and federal protection

What happens if a bank or credit union fails? Is your money just *poof* gone? Thankfully, both banks and credit unions are federally insured, meaning your money is as safe in a credit union as in a traditional bank. Hopefully, you can rest a little easier knowing both have the financial backing of the U.S. federal government. It's important to note this does not extend to products like mutual funds, life insurance policies, or cryptocurrency investments. 

Credit unions — NCUA

Credit unions are federally insured by the National Credit Union Administration (NCUA). Any money you have with an NCUA-insured credit union is insured by the U.S. government up to $250,000 per member-owner. So, if you and your spouse share a joint checking account, you're insured up to $500,000 under this policy. 

Banks — FDIC 

Banks are federally insured by the Federal Deposit Insurance Corporation (FDIC). Like the NCUA, the FDIC ensures money is safe at your bank, up to $250,000 per depositor. There's no need to apply for FDIC insurance, as coverage is automatically applied as soon as you make a deposit at an FDIC-insured bank. 

Splitting hairs to trim costs 💇‍♂️

Learning the difference between a credit union and a bank can trim your costs dramatically. Now that you're in the know, you've seen that credit unions and banks offer similar financial services and have nearly identical federal protection. They differ in that credit unions are owned by members who are not seeking to turn a profit, meaning fewer fees and often lower interest rates on loans. The downside is that credit unions may have eligibility requirements or a limited number of locations. The one you pick will depend on your specific banking requirements. If you're a "do everything online" sort, a bank that offers updated tech may be your best option. But if you like personalized customer service, look into local credit unions who will get to know you. 

If you want to gain more financial insight into things "you should already know," check out our Learning Center, which offers a wide range of informative articles that can help you feel confident that you know what you are supposed to know.