Credit Union vs. Bank: What's the Difference and Which Is Right for You?

Short answer: The main difference in credit union vs. bank is who owns it and who can use it. A credit union is a not-for-profit financial institution owned by its members, and it accepts deposits only from members. A bank can accept deposits from anyone. Both offer checking, savings and loans, and deposits at both are federally insured up to $250,000 when the institution is covered by the FDIC (banks) or the NCUA (credit unions).

Neither is automatically better. The right choice depends on the rates, fees and access you get, and on whether you qualify to join a particular credit union. This guide explains the differences and what to compare.

What Is a Credit Union?

The National Credit Union Administration (NCUA), the federal agency that charters, regulates and insures federal credit unions, describes a credit union as "a not-for-profit financial institution that accepts deposits, make loans," and provides a wide range of other financial services and products.

Three features set credit unions apart:

• Member-owned. Credit unions are owned and controlled by the members who use their services. Members elect a volunteer board of directors to manage the credit union.
• Not-for-profit. All credit unions are not-for-profit. The NCUA says profits are returned to members in the form of reduced fees, higher savings rates and lower loan rates, and surplus income can be paid to members as dividends.
• Cooperative. In the NCUA's words, "One member's savings becomes another member's loan."

Credit Union vs. Bank: What Are the Key Differences?

	Credit union	Bank
Who can deposit	Members only	Anyone
Ownership and control	Owned by its members, who elect a volunteer board	No membership required to bank there
Profit status	Not-for-profit; profits returned to members	—
Federal deposit insurance	NCUA Share Insurance Fund (federally insured credit unions)	FDIC (FDIC-insured banks)
Standard insured amount	$250,000 per share owner, per credit union, per ownership category	Up to $250,000 per depositor

The Maryland Office of Financial Regulation sums up the main difference: banks may accept deposits from anyone, while credit unions accept deposits only from their members.

Who Can Join a Credit Union?

To join, you need to fit the credit union's field of membership, the common bond its members share. The NCUA lists these common ways to qualify:

1. Your employer. Many employers sponsor their own credit unions.
2. Your family. Most credit unions allow members' families to join.
3. Where you live, work, worship or attend school. Many credit unions serve anyone in a particular geographic area.
4. A group you belong to. Membership in a group such as a place of worship, school, labor union or homeowners' association may qualify you.

The NCUA's Credit Union Locator at mapping.ncua.gov can help you find credit unions near you. Each credit union sets out who can join, so check its membership rules before you apply.

Do Credit Unions Have Better Rates and Lower Fees?

On average, according to the NCUA, credit unions offer higher savings rates and lower loan rates. They also tend to charge lower fees, require lower deposit balances and offer tailored services to their members. The NCUA's site links to a comparison of current credit union and bank rates.

Averages don't tell you what a specific institution will offer you, though. California's Department of Financial Protection and Innovation (DFPI) suggests looking at the costs that come with an account, such as overdraft, minimum balance, ATM and monthly maintenance fees or charges for digital transfers, and at the benefits, such as interest rates and new-account bonuses. If you open an account for a promotion, make sure you understand what happens when it ends.

Is Your Money Safe in a Credit Union?

At a federally insured credit union, your deposits are protected much like deposits at an FDIC-insured bank.

• Who insures it: The National Credit Union Share Insurance Fund (NCUSIF), managed by the NCUA and backed by the full faith and credit of the U.S. government.
• How much: The standard amount is $250,000 per share owner, per insured credit union, for each account ownership category. Single accounts, joint accounts, trust accounts and retirement accounts such as IRAs are insured separately.
• What's covered: Regular shares (savings accounts), share certificates and share draft accounts (checking accounts).
• What's not covered: Investment products a credit union may offer, such as mutual funds and annuities.
• Cost to you: None directly. Members don't pay for share insurance.

The NCUA says no member of a federally insured credit union has ever lost one penny of insured savings.

One caution: all federal credit unions are federally insured, and the NCUA also insures state-chartered credit unions that apply and qualify. Some state-chartered credit unions are covered by private insurance instead, which the NCUA says is separate from the federal fund and not backed by the U.S. government. Check before you deposit. For how bank coverage works, see our guide to FDIC insurance limits.

Credit Union Pros and Cons

Based on the NCUA's description and the DFPI's checklist, here's how the trade-offs tend to line up:

Possible advantages of a credit union

• Member ownership and a vote for the board of directors.
• On average, higher savings rates, lower loan rates and lower fees, according to the NCUA.
• Lower deposit balance requirements, which the NCUA says credit unions tend to have.

Possible drawbacks of a credit union

• You have to qualify for membership.
• Branch and ATM access depends on the credit union. The DFPI notes that being able to get cash from an ATM or talk to someone at a branch can be invaluable, so check locations before you join.

A bank may accept deposits from anyone, so there's no membership requirement to meet. Whichever you choose, the Maryland regulator suggests confirming the institution is insured by the FDIC (for a bank) or the NCUA (for a credit union), checking branch, online and phone options, and reviewing account fees, including overdraft fees.

How Do You Choose Between a Credit Union and a Bank?

Use the same checklist for both:

1. Confirm federal insurance. FDIC for banks, NCUA for credit unions. The DFPI notes that many online banks and credit unions are federally insured too, but check before you open an account through an app.
2. Compare fees. Monthly maintenance, minimum balance, overdraft, ATM and transfer fees.
3. Compare rates. Savings yields and loan rates on the products you'll actually use.
4. Check access. Branches, ATMs, online banking and phone support where you live and travel.
5. For a credit union, confirm you qualify under its field of membership.

You don't have to pick only one. You could keep checking where access is easiest and savings where the rate is best. Our guides to checking vs. savings accounts, money market accounts vs. savings accounts and building an emergency fund can help you decide what goes where.

The Bottom Line

Credit unions and banks offer many of the same products. A credit union is member-owned and not-for-profit, and you have to qualify to join. A bank serves anyone. The NCUA says credit unions, on average, pay more on savings and charge less on loans and fees, but your best choice comes down to the actual rates, fees and access you're offered. Whichever you pick, make sure it's federally insured, and keep your deposits within the $250,000 limits explained in our guide to FDIC insurance limits. For more, see our banking guides.

Frequently asked questions

What is the main difference between a credit union and a bank?

Ownership and membership. Credit unions are not-for-profit and owned by their members, who elect a volunteer board of directors. Banks may accept deposits from anyone, while credit unions accept deposits only from members.

Is my money safe in a credit union?

At a federally insured credit union, yes, up to the limits. The National Credit Union Share Insurance Fund insures member accounts up to $250,000 per share owner, per insured credit union, for each account ownership category, and it's backed by the full faith and credit of the U.S. government. The NCUA says no member of a federally insured credit union has ever lost a penny of insured savings.

Are all credit unions federally insured?

All federal credit unions are. The NCUA also insures state-chartered credit unions that apply and qualify. Some state-chartered credit unions are privately insured instead, and that coverage is not backed by the U.S. government. You can check a credit union with the NCUA's Credit Union Locator.

How do I join a credit union?

Find a credit union whose field of membership you fit. Common bases are your employer, your family (many credit unions let members' families join), where you live, work, worship or attend school, or a group such as a school, place of worship, labor union or homeowners' association. The NCUA's Credit Union Locator can help you find one.

Do credit unions have better rates than banks?

On average, according to the NCUA, credit unions offer higher savings rates and lower loan rates, and they tend to charge lower fees. That's an average, not a promise, so compare the actual rates and fees each institution offers you.

Sources

1. MyCreditUnion.gov (NCUA): How Is a Credit Union Different Than a Bank?
2. MyCreditUnion.gov (NCUA): What Is a Credit Union?
3. MyCreditUnion.gov (NCUA): Your Insured Funds
4. Maryland Office of Financial Regulation: Bank and Credit Union Accounts FAQ
5. California DFPI: How to Choose Your First Bank or Credit Union

This guide is general information, not personal advice. Your situation may differ, so consider talking with a qualified professional, such as a fiduciary financial adviser, CPA or licensed agent, before making a decision.