Banks vs. Credit Unions: Which Is Best for You?

Banks are for-profit financial institutions that offer a wide range of services. They make money by charging interest on loans, fees for services and investing customer deposits. Banks are owned by shareholders who expect a return on their investment.

Credit unions are not-for-profit financial cooperatives owned and controlled by their members. They offer many of the same services as banks, but because their primary focus is on providing affordable financial services to their members, credit unions typically have lower fees and better interest rates than banks.

The best option for you comes down to what you value. If you travel often and want access to local branches and ATMs, a national bank is better for you. But if you want lower fees and access to the best interest rates, you’ll get the most out of a credit union that serves your region or neighborhood.

Banks are for-profit institutions, and your deposits into bank accounts are typically secured by the Federal Deposit Insurance Corporation (FDIC). Credit unions are not-for-profit institutions, with deposits secured by the National Credit Union Administration (NCUA).

Banks and credit unions offer the same basic financial services, but credit unions gain an edge over banks when you compare localized opportunities and standard interest rates. For example, a credit union might offer special interest rates on mortgages for first-time homebuyers in a specific region that bigger banks can’t compete with.

When choosing between a credit union and a bank, first decide what aspects are more important to you. Credit unions often offer lower fees, better interest rates and more personalized service and tend to focus on community involvement.

Banks may offer more technological features, a wider range of services and more financial products, but their fees and interest rates are generally less competitive than credit unions. If in-person service at a branch is important to you, choose a bank or credit union with convenient access to nearby branches.

One key difference between banks and credit unions is their ownership structure. This distinction is important because it directly impacts an institution’s decision-making process and how it serves its customers or members. Generally, credit unions take their profits and “give back” to member-owners through special offers, low rates and access to special services. Banks are larger and usually offer more product options, but their profits go to shareholders.

Banks and credit unions differ in their scope and reach, which determines the types of services they offer. Banks, and especially larger national and international banks, often have a more global perspective and typically offer better services for those with international banking needs. Credit unions tend to have a local focus and may not offer any international banking services. However, they can have special regional discounts or partner with local charities, for example, to improve the quality of a particular community or neighborhood.

Access to branches and ATMs is an important consideration when choosing between a bank and a credit union.

National banks tend to have more branches and ATMs than credit unions, making it easier to access your money without paying out-of-network fees. However, many credit unions belong to shared networks, allowing members to use other credit union ATMs for free.

While both banks and credit unions offer online and mobile banking services, larger banks often have more resources to invest in cutting-edge technology. This may include advanced mobile apps, online bill pay and account management tools. Credit unions have caught up in recent years, offering similar technological capabilities to their members.

Both banks and credit unions are regulated by government agencies to ensure they operate safely and fairly. Banks are regulated by federal agencies such as the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC). Credit unions are regulated by the National Credit Union Administration (NCUA).

Most types of accounts at banks and credit unions are insured, including savings and checking accounts, cash management accounts, single and joint ownership accounts and business accounts.

Account types not insured through either agency are mutual funds, annuities, life insurance policies and investments such as investment funds, stocks and bonds.

A fiduciary is a person or institution that has a legal duty to act in the best interests of another party. In the context of banking, fiduciary relationships are preferred over for-profit money managers because they provide a higher level of trust and accountability. Fiduciary relationships are found in both banks and credit unions, as they are regulated by federal and state agencies.

While banks and credit unions can act as fiduciaries, credit unions are more likely to have a fiduciary relationship with their members because they are member-owned.

Unlike banks, credit unions prioritize member service over profits and can typically offer lower fees and competitive interest rates. Credit unions are exempt from state and federal taxes, which allows them to offer lower loan rates. Profits are reinvested or distributed as dividends to members.

Membership criteria, including employer affiliation, family ties, residency or group membership, can vary. Some of the different types include federal, state, college, military and community credit unions, each with its own unique benefits.

Both banks and credit unions provide basic banking services. It’s important to understand how each one works, how each makes money and what kinds of products they offer as you decide which one is right for you.