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

Banks and credit unions are both financial institutions that offer a variety of personal finance and business products.

While nearly everyone in the United States is a member of a bank or credit union – or both – not nearly as many people understand the difference between the two.

Indeed, it can be difficult to know the difference between a bank and a credit union, and which institution is best for you. Both offer checking/savings accounts, mobile banking, ATM services, and credit cards.

So, what’s the difference?

Although banks and credit unions offer similar products and services, there is a big difference between how they do business.

Here are the major differences between a bank and a credit union, along with some advice on which financial institutions might be best.

For-Profit vs. Non-Profit

The main difference between a bank and a credit union is that a bank is a for-profit institution while a credit union is a non-profit.

In other words, banks are businesses looking to make money, while credit unions are businesses looking to serve their members.

As for-profit businesses, banks pay taxes, and the larger banks are publicly traded companies. On the other hand, credit unions are generally exempt from federal taxes, and many receive subsidies from sponsoring organizations.

No Membership vs. Membership

Another major difference between a bank and a credit union is found in who can do business with the institution.

Most banks, especially large national ones, are willing to do business with anyone as long as the bank feels they can make money.

Credit unions, on the other hand, are not available to just anyone. Each credit union will have its own requirements for membership, but typically members share a commonality, such as working in the same industry or living in the same community.

Furthermore, credit unions typically vote to elect a board of members that manages the credit union. The focus of this board is to serve the needs of the members.


You’ve likely heard of the FDIC (Federal Deposit Insurance Corporation), which insures deposits in banks for at least $250,000.

Created in 1933 after the stock market crash (and the collapse of many banks), the FDIC is an independent agency that guarantees you won’t lose the funds in your bank accounts (up to a certain amount) in the event of a bank collapse.

On the other hand, credit unions are insured by the NCUA (National Credit Union Administration).

Like the FDIC, the NCUA insures money deposited in credit unions up to $250,000 in the event of a credit union collapse. Created in 1970, the NCUA also establishes rules that credit unions must follow and requires annual reports.

National vs. Local

This one is more a generalization than a hard and fast difference.

While both banks and credit unions can be local or national, you’re likely far more familiar with national banks than you are a national credit union. In a recent article by Bankrate giving the most popular banks by state, 22 of them were either Wells Fargo, Chase, or U.S. Bank.

Compare that with an article giving the most popular credit unions by state, and there wasn’t a single credit union that was the most popular in more than one state.

Thus, while both banks and credit unions can be found locally or nationally, you’ll find that more banks are national institutions and more credit unions are local institutions.

Interest Rates vs. Fees

Remember, banks exist to make money, and credit unions exist to serve their members. Also, banks tend to be larger and found nationally, while credit unions tend to be smaller and found locally.

Because banks are for-profit and must pay taxes, they often charge higher fees and pay lower rates to their customers.

On the other hand, credit unions tend to charge less interest on loans, have lower fees, and pay higher interest rates on various types of savings accounts. Again, this is because credit unions are non-profit and seek to serve their members.

Convenience vs. Customer Service

Yet another difference between a bank and a credit union is the convenience and customer service you can expect to receive.

Because most banks are larger, they typically offer more branches and have superior technology, mobile access, and rewards programs. Thus, many find larger banks to be much more convenient, especially when traveling or out of your local area.

Credit unions, typically being smaller and more focused on serving their members, can boast better customer service than their big bank counterparts.

Personal Service vs. More Services

The last main difference between a bank and a credit union is found in the kinds of services offered.

Being larger, banks are often able to provide a wider range of services to their customers than a credit union can. For instance, large banks often offer multiple types of credit cards and a wider variety of business services.

Conversely, a credit union serves a community and thus can offer more personalized services to their members. For instance, credit unions may be more willing to approve loans for members. They’ll also typically offer services in the form of financial education and outreach.

Which Is Better for You?

The differences we just described make it easy to think the clear winner would be credit unions. However, determining which type of financial institution is right for you isn’t so simple.

Ultimately, each individual bank or credit union should be evaluated based on the services offered and how well they fit your specific needs.

While large banks provide a more cookie-cutter service experience, they’ll also typically offer a wider range of services. On the other hand, while a credit union may offer very personalized services, they may be so small that they can’t offer as many of the modern conveniences.

In the end, it will be up to you to decide what matters most to you and what your specific needs are. Make a list of the things that matter most to you in a financial institution, and then decide whether a bank or a credit union will best meet those needs. Next, look at specific options in your area and decide which institution is the best. Unless you live in a very rural area, you are almost guaranteed to be able to find a credit union or bank that will work for you.

Make sure you consider fees, minimum deposit requirements, interest rates (both earned and paid), and the reputation of the institution before making your decision.

Another option is to utilize both banks and credit unions in your personal finances. For instance, you might have your primary checking/savings accounts at a credit union while holding credit cards with a major bank.

Depending on the interest rates offered for your specific loan needs, you might also take out loans with either a bank or credit union.

Moral of the Story

On the surface, banks and credit unions offer mostly the same services and personal finance products. However, banks and credit unions are very different organizations because of their business model and goals.

While banks are for-profit and exist to make money, credit unions are non-profit and exist to serve their members.

Other differences include rules for membership, which organization insures them, location, interest rates and fees, customer service and convenience, and the services offered.

Now that you know the difference between a bank and a credit union, which one is right for you?