A Credit Union Vs Bank

Ever wonder what the difference between a credit union and a bank is? Maybe not, but it could be costing you thousands of dollars and a whole lot more.

Prepare to have your mind blown.

If we could take a guess, your parents probably opened a bank account for you at their bank when you were young and you just … stuck with it, right? It likely never crossed your mind that you could switch. It’s even less likely that you considered a credit union vs a bank.

But just because your parents did something a certain way, doesn’t that’s what’s best for you. In fact, once you learn about credit unions, you might just find yourself trying to convince your parents to make the switch, too.

What is a Credit Union?

A credit union is a member-owned financial institution that works a lot like a bank, but prioritizes people over profit.

Credit unions distribute profits among you and the other members of your credit union in the form of lower interest rates, fees, etc. rather than lining the pockets of banking executives. In short, they make it easier to get better loans and financial guidance from real people who care about your financial well-being.

They offer:

  • Checking and Savings Accounts
  • Loans
  • Credit and Debit Cards
  • Money Orders
  • ATMs
  • And other services that banks offer

How Is a Credit Union Different from a Bank?

To understand how credit unions differ from banks, you first need to know how a bank works.

If you think a bank is owned by a bunch of men in suits at a round table in a fancy conference room with a gold bar cart filled with top-shelf whiskey … you’re probably right, tbh.

Every service fee, annual fee and interest you pay on a loan — most of it goes back to that table of bank owners.

And those suit-clad bank owners’ primary obligation? Their shareholders.

And their shareholders’ main concern? Profit.

And the higher their loan interest rates and the lower their savings interest rates are, the more they profit.

And they profit off you, their customer, so they can buy more top-shelf whiskey and custom tailored suits, increasing the already massive wealth gap.

A credit union, on the other hand, is member-owned — meaning that instead of a big table of bankers owning the bank…

you own it!

(Alexa, play Money by Cardi B)

money by cardi b

Pros of Credit Unions

1. Shared Ownership

Now that we’ve kicked the big bankers out of our hypothetical conference room, there’s no one left who’s trying to profit off you. Instead, the moment you open an account with a credit union, you become a member instead of a customer. And you and all the other members own the credit union.

Those freshly empty seats at the conference table? They’re yours! (Slide that bar cart on over here, would you?)

This essentially means credit unions are not-for-profit financial institutions — meaning that any profit made off your money goes right back to you and your community in the form of:

  • Lower Fees
  • Lower Loan and Credit Card Rates
  • Better Interest Rates
  • Flexibility
  • Better Qualification Requirements
  • A Tight Community
  • Better Customer Service
  • bill payments

2. Lower Fees

Credit unions still charge fees, sure. (Gotta keep the place running somehow.) But there are often far fewer fees, and those fees are also lower than bank fees.

And while ATMs for your credit union may be a little harder to find, they often don’t charge ATM fees. Often they even waive fees from out-of-network ATMs.

3. Lower Loan and Credit Card Interest Rates

Because no one is trying to profit off a credit union’s members, credit unions are able to charge lower interest rates on loans and credit cards. So if you take out a loan and put, say, $200 to that loan every month, you’ll pay it off faster than you would with a bank loan because the interest rate isn’t as high.

Same thing goes for credit cards. So when you finally decide to replace your old college mattress or buy a couch with your credit card, a bank might give you a 13% interest rate while a credit union might give you 9% — allowing you the freedom to pay it off faster or make smaller payments

4. Better Savings Interest Rates

Remember those low, low fees credit unions charge? Well, not only are they lower than bank fees, but they also go straight back into your pocket in the form of better interest rates.

When it comes to credit unions vs. banks, credit unions offer some of the best interest rates so you can watch your money grow faster.

(Why wait until you save a few hundred to start earning interest when you could just put in one month’s Spotify premium money?)

Online banks are the next best alternative, but credit unions have the added benefit of keeping your money local and encouraging wealth distribution.

5. Flexibility

Saving enough money for an initial bank deposit to open a new account can feel nearly impossible, especially if you’re

  • saving for college
  • paying off student loans
  • paying off medical bills
  • barely making enough money for rent because minimum wage still hasn’t gone up 

That’s where credit unions also come in handy. Not only can your money grow faster with a credit union — you can also start growing it sooner than you would with a bank because the initial deposit needed is often lower.

The minimum balance is often lower, too, so on a particularly tight month, you don’t have to worry about getting fined if you only have $9 to your name.

6. Qualification Requirements

Fresh outta high school with no credit history? Still recovering from some old mistakes? That drunken Amazon one-click purchase spree from last year? (Drunk you really needed that dad bod beach towel, we know.)

Credit unions are often far more flexible when it comes to credit requirements.

No need to worry about judgy stares from bankers when they see your credit score.

7. Tight Community

Because many credit unions serve local or niche communities — and because they are owned by every member — they’re often more invested in their people.

Love for their community + the not-for-profit system = grants, scholarships and fundraisers for the members.

Why invest in some rich men you’ll never meet when you could invest in your own community?

8. Better Customer Service

From financial workshops to credit counseling, credit unions are invested in their members and often provide the education and services they need to be financially literate.

And because they’re invested in their community — and because those communities are often smaller than a bank — credit unions have the ability to connect with their community and personalize their services to each members’ needs.

9. More Wealth Equality

As long as banks continue to profit off their customers, the wealth gap will continue to increase. In short, banks make the rich richer and the poor poorer.

But with a credit union, when your money is going back into your own pockets in the form of lower fees, higher interest on savings and lower interest on loans, that means no one is profiting off you. Which means instead of increasing wealth inequality, you’re actively working against it.

In fact, credit unions were started as a way to help poor urban workers avoid loan sharks. Then, when the Great Depression hit, laws were established to oversee credit unions on a federal level to help poorer citizens get credit and eventually have their deposits insured just like banks.

We can’t magically fix the economy overnight, but by joining a credit union, you’re saying “screw you” to the very people who caused wealth inequality in the first place. And that’s a pretty damn good feeling.

Who Are Credit Unions For?

Lower fees, better savings interest rates, lower loan interest rates — does all this mean credit unions are only for those living paycheck to paycheck? Of course not.

Let’s say you’re on solid ground, financially. You worked hard for your money. Why shouldn’t you also get lower fees and better interest rates?

The added benefit is that what little money you do end up paying the credit union doesn’t go to bankers in a stuffy conference room — it goes back to help the community you love. That way, you get to keep more of your money AND encourage wealth distribution.

It’s a win-win for you and your community.

three friends biking

Additional Resources

In THIS Economy? When to Start Saving for Retirement

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Adulting 101: How to Start Investing

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Credit Union vs Bank When Getting a Loan

1. Credit Union vs Bank Auto Loans

Ready to replace your clunker but worried about all that interest you’ll pay? A credit union may be your most affordable to a new ride. Auto loans from a bank are often 4.5% or higher, which doesn’t sound too bad until you compare to credit union auto loans, which usually sit around 2.5% to 3.5%.

So not only will a credit union save you money in the form of interest – you’ll also have the added benefit of the lower fees we mentioned above.

2. Credit Union vs Bank Mortgage

Ah, homeownership — often thought to be a pipe dream for Millennials and Gen Z. However, credit unions just might be the key to making that dream a reality. Why?

First, credit unions are more likely to lend to people with poor or little credit history. So whether student loans have damaged your credit or you avoided student loans entirely and never started building credit at all, you might still be able to score a home loan from a credit union.

Second, because credit unions often hold tight to mortgages they create rather than selling them (like banks do) they can be more flexible with interest rates — giving you the freedom to make smaller payments or pay the loan off faster.

Need a loan?

Don’t let the interest you pay line the pockets of rich bankers, keep it for yourself. Get a credit union loan instead.

Just answer a few questions … and we’ll do the rest.

Get Started on a Loan

Credit Union vs Bank Checking/Savings Accounts

As mentioned above, credit unions and banks both offer checking and savings accounts, with credit unions offering fewer types of checking and savings accounts. Despite this, credit unions still often offer direct deposit, overdraft protection and mobile banking.

And while larger banks might have bigger ATM networks, some credit unions waive fees at ATMs outside of the credit union. Banks don’t even do that for their own ATMs sometimes.

Additional Resources

Budgeting Tips: 15 Small Ways to Save Big Money

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Backpacking Across Europe? Here’s How to Budget for Travel

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Credit Union vs Bank Regulations

Banks are regulated by many different federal and state agencies:

  • The Federal Reserve
  • Federal Deposit Insurance Corporation
  • Office of the Comptroller of the Currency
  • Various interagency regulatory bodies
  • Various state regulators

Federal credit unions, however, are regulated by the National Credit Union Administration on a federal level, which also operates the National Credit Union Share Insurance Fund. That fund is comparable to the FDIC and insures deposits.

So with a credit union, there are far fewer agencies meddling in your moolah.

There are some credit unions that aren’t federally backed: state-chartered credit unions. These credit unions are backed by private insurers rather than the government.

Credit Union vs Online Banking

Online banks have many advantages over regular banks — they’re always “open” and often have lower fees and rates because they’re not paying for the upkeep of brick-and-mortar locations.

And those fancy online bank apps are sweet! However, online banks still lack some functionalities and services that banks and credit unions have because they’re entirely online, e.g. you can’t walk in to talk to a human face to face, etc.

A credit union is a good balance between the convenience of a traditional bank and the low fees of an online bank plus the added benefit of personalized customer service.

AI is sweet, but real humans are sweeter.

Additional Resources

Replace Your Clunker (Finally) With a Credit Union Auto Loan

view resource

How Credit Union Mortgages are Changing the Game for Millennials

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How Safe is a Credit Union vs. a Bank

Federally insured credit unions are just as safe as FDIC-insured banks. The National Credit Union Share Insurance Fund is backed by the U.S. Treasury, and insures up to $250,000 — the same as banks.

And with state-chartered credit unions? Your deposits aren’t quite as secure as they are with a federally insured credit union, but state-chartered credit unions are still a very safe place to keep your money.

In addition to insuring your $$$, the NAFCU also holds credit unions to a high standard regarding cybersecurity. In fact, cybersecurity is such a high priority for NAFCU that they made it a top focus for compliance exams.

How to Join a Credit Union Vs Bank?

Banks are open to anyone and everyone, but credit unions are required to have a defined field of membership such as:

  • a city
  • a state
  • an organization
  • a religious institution
  • a school
  • a workplace
  • a military branch
  • etc.

Find a Credit Union Today

Forget big banks. Get matched with a credit union that empowers you to be your best self and achieve your financial dreams.

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