Credit Union or Bank: Know the Difference?

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Credit Union or Bank: Know the Difference?

Banks and credit unions offer virtually the same menu of products. In some cases, financial products at credit unions may have unfamiliar names — for instance, credit unions refer to savings accounts as “share accounts” and to customers as “members” — but at both institutions you’ll have a variety of deposit and loan accounts to choose from.

The distinction between the two types of financial institutions doesn’t end there. Below, we describe the most common areas where banks and credit unions diverge.

Business Structure

  • Bank: Banks are for-profit financial companies and can be large or small, national or local. In most cases they are public companies, which means they are led by paid board members, who are not necessarily depositors themselves at the banks they operate. As with other public companies, the ultimate owners are the bank’s shareholders who purchase company stock as an investment, for which they expect a financial return.
  • Credit Union: Credit unions are not-for-profit financial cooperatives that are typically small and local. They are run by member-owners on a one member-one vote system. Under this structure, members agree on all of the cooperative’s decisions together. And unlike a bank’s paid board, directors at most credit unions are unpaid volunteers who are elected by vote.Credit union profits are distributed to members in two ways: 1) Members earn interest (called “dividends” by many credit unions) on their deposit accounts, and 2) some credit unions periodically provide dividend checks.


  • Bank: Like any ordinary company, a bank is free to conduct business with any customer.
  • Credit Union: By law, credit union membership is restricted to certain groups of affiliated people based on, for example, where they live, work, worship or attend school. Those who belong to a particular group, association or organization may also qualify. You can qualify if another member of your family or household belongs to the credit union, and some credit unions will qualify anyone who makes a small donation to a particular charity. And under the Federal Credit Union Act, once you become a member of a credit union, you are a member for life even if you leave your affiliated group.

Product & Service Variety

  • Bank: Commercial banks, especially large ones, frequently offer many financial products and services beyond just consumer banking. In many cases their size and financial clout allow them to offer a wider range of consumer products and services than credit unions.
  • Credit Union: Credit unions tend to be more narrowly focused on financial services for consumers. While some may offer accounts for small businesses, credit unions concentrate more on the financial needs of their members. Although the range of credit union financial products may be narrower than those offered by banks, they seek to make up for it by offering better insurance rates, lower fees and personal service.

Accessibility & Customer Service

  • Bank: Banks can be big or small, but even the largest credit union won’t match the branch and ATM networks of a medium-sized bank. And customers of larger banks can expect to find conveniently located branches and ATMs even when they travel. Banks tend to provide greater access to services such as 24/7 customer service, weekend hours and the latest advances in electronic and mobile banking.But their larger size often means a sacrifice in other areas such as personal service. The bigger the bank, the less personal the attention customers tend to receive. In 2014, banks scored 76 out of 100 points on the American Customer Satisfaction Index (ACSI), compared with 85 points for credit unions.
  • Credit Union: To compensate for their limited presence, many credit unions have joined ATM- and branch-sharing networks to provide their members more convenient access to services. Nonetheless, a number of credit unions still offer limited hours, and some smaller credit unions don’t provide electronic banking services, mobile banking apps or even ATM cards at all. But what credit unions lack in physical presence, they tend to make up for with superior customer service.

Fees, Incentives & Rates

  • Banks: In general, banks charge many more — and more expensive — fees than credit unions. And compared with credit unions, banks commonly pay their customers lower interest earnings on deposit accounts and charge higher interest rates on loans, but not in every case. On the flip side, banks usually offer the best rewards on credit cards.
  • Credit Unions: Fees, such as overdraft and nonsufficient funds (NSF) fees and ATM fees, tend to be lower at credit unions than banks. Membership requires a deposit of as little as $5 and most do not require a minimum daily balance to avoid fees.

Tax Structure

  • Bank: As for-profit companies, banks are subject to state and federal income taxes on corporate profits, either directly or through taxes paid by their owners.
  • Credit Union: As not-for-profit organizations, credit unions pay no state or federal income taxes, an advantage that helps make it possible to offer favorable interest rates and charge fewer and cheaper fees to members. However, credit unions are not immune to the payroll, sales or property taxes that every business must pay.

Deposit Insurance

Two different agencies provide deposit insurance to bank and credit union customers. The Federal Deposit Insurance Corporation (FDIC) insures deposits at almost all banks, whereas the National Credit Union Administration (NCUA) insures deposits at all federal credit unions and most state credit unions.

But the level of coverage is the same: In both cases, funds are insured up to $250,000, depending on your type of account and the number of people who own it. Source:

That wraps up our difference in Credit Unions and Banks.

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