bank vs credit union
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Deciding Between Banks and a Credit Union? Check Out the Differences


Sep. 21 2020, Updated 1:50 p.m. ET

It might seem that banks and credit unions serve similar purposes—they both offer checking accounts, saving accounts, money market accounts, and home and auto loans—but they handle profits very differently. And when deciding to do business with a bank vs. a credit union, it’s good to know what differentiates the two.

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What’s the difference between a bank and credit union?

According to The Balance, the most important difference between a bank and a credit union is that banks are for-profit organizations and credit unions are not-for-profit. 

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Whereas banks are businesses, credit unions are financial cooperatives. By depositing their money in credit unions, members are buying shares in the cooperative “in order to be able to provide loans, demand deposit accounts, and other financial products and services to each other,” Investopedia explains.

Credit unions strive to return profits to their members and promote their members' financial wellbeing, while banks aim to maximize profits for their shareholders.

Another difference: Credit unions typically restrict membership to a certain group of people. For example they might only serve the workers of a particular industry, or the residents of a particular region or the members of a particular organization. But The Balance notes that this “field of membership” requirement is relatively easy to meet, especially because some credit unions are open to remote members or are entirely online, and Investopedia reports credit unions have eased their membership restrictions in recent years.

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Finally, credit unions may not boast as many locations as banks do or offer all the services that banks do—including specialized products, such as student loans or trustee services. But credit unions often feature lower rates and more personalized customer service than large banks since they’re typically smaller and focused on maximizing profits for members, not stockholders.

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Are credit unions FDIC insured?

Credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC) like many banks are, but many credit unions—including all federal credit unions—are insured through the National Credit Union Insurance Fund (NCUSIF), according to The Street. Additionally, all credit unions insured by the NCUSIF must display an insurance sign from the National Credit Union Administration. 

State-charted credit unions, meanwhile, might be insured by the NCUSIF or they might be covered by state insurance or private insurance. Like the FDIC, the NCUSIF protects up to $250,000 per depositor per institution, The Balance reports.

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So, which is right for you? Nerdwallet recommends figuring out your list of priorities in terms of account and customer service features, and then finding banks and credit unions that fulfill that wish list. You can also consider other factors, the site says, like whether the institution offers digital banking, brick and mortar locations, and a network of ATMs.

Bankrate offers similar advice. “If ownership isn’t important to you, the decision comes down to the products and the rates and fees you seek at the individual institution you’re looking at,” the site says. “And remember: You can maintain accounts at both banks and credit unions to avail the benefits of both.”


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