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Credit Unions and Banks: What’s the Difference and Which One Is Right For You?

When comparing banks and credit unions, look out for fees, minimum balance requirements and rates on savings products.

Boonchai Wedmakawand/Getty Images

Many of us know what a bank is and how it operates. But you’ve probably also heard about people conducting financial transactions through a credit union.

Banks and credit unions are very similar: Both institutions offer checking, savings, money market accounts, personal loans, certificates of deposit, credit cards and investments, and both are usually federally insured.

But compared to banks, credit unions tend to be smaller, operate regionally and are not-for-profit. In many instances, they offer lower rates on loans, charge fewer fees and offer better interest rates for deposit accounts than traditional banks.

Credit unions can appeal to a wide range of members, from people looking for more personalized service to those hoping for a better rate on a mortgage or a car loan.

Banks and credit unions both have benefits and drawbacks. Read on to learn more about their differences. For more on banking, check out the best high-yield savings accounts right now and current mortgage rates.

Read more: How to find the best credit union

What is a credit union?

A credit union is a financial institution that operates like a bank but is owned and governed by its members. Because they’re not-for-profit, credit unions are tax-exempt.

Traditionally, credit unions aren’t open to everyone: In some cases, to qualify you or a family member may need to work in a specific industry, belong to a specific association or house of worship, or live in a particular area.

But some credit unions have relaxed their membership requirements in recent years, allowing more members to join. For example, to qualify for membership at some credit unions, you may only be required to make a small donation to a cause or foundation the credit union supports.

The number of credit unions in the US has dropped from more than 6,700 in 2013 to fewer than 4,900 at the end of 2022. But the number of Americans who have joined a credit union has grown steadily, according to Statista, reaching more than 132 million in the first half of 2022.

The largest US credit union is Navy Federal Credit Union, which has more than $166.1 billion in assets, as of early this year.

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

At first glance, the most notable difference is size: Banks are larger, with more branches and ATMs and more robust online services.

Because they’re smaller, a credit union may also offer fewer financial products.

Deposits of up to $250,000 per account, per institution, are protected in both banks and credit unions. Banks are insured by the Federal Deposit Insurance Corporation, or FDIC, while the money held in credit unions is protected by the National Credit Union Administration, or NCUA. 

On a deeper level, the two have different priorities: Banks are profit-driven, so you’ll usually find more transaction and late fees, as well as higher rates on loans and lower yields on investments. Online banks have changed that equation a little, becoming more competitive with credit unions on rates and fees.

Credit unions don’t need to worry about stockholders and can focus on providing members with the best terms available. Profits are returned to members through fewer fees, lower interest rates and higher returns.

Members of credit unions are co-owners, so they get to vote on who’s appointed to the board and other important issues.  And because they’re focused on the financial wellness of their members, many credit unions offer money-management workshops and counseling.

Read more: The Best Online Banks

How do I find a credit union?

According to the Credit Union National Association, about 99% of consumers are eligible to join at least one credit union.

You can search the NCUA website to find credit unions in your area and also look up a credit union’s requirements, size and history.

You can also check with your employer, local civic or religious group, or other organizations to see if any of them are associated with a credit union.

The bottom line

Banks and credit unions provide safe, accessible ways to manage and grow your money. However, each institution has its pros and cons, such as fees and membership requirements, which should be considered before you make a decision. When researching banks and credit unions, be sure to compare fees, interest rates and types of services offered to see which institution is the best fit for your financial needs.

Editors’ note: An earlier version of this article was assisted by an AI engine. This version has been substantially updated by a staff writer.

Dan is a writer on CNET's How-To team. His byline has appeared in Newsweek, NBC News, The New York Times, Architectural Digest, The Daily Mail and elsewhere. He is a crossword junkie and is interested in the intersection of tech and marginalized communities.