Credit Union vs. Bank: How Are They Different?

Written by Lauren Perez, CEPF®

Edited by Mo Mozuch

Edited by Arturo Conde, CEPF®

Updated on May 7, 2025, 7:20pm ET

You’re probably already familiar with big banks. Chances are you already have a bank account, too. But what’s up with big banks’ smaller cousins, credit unions? We often hear about credit unions, but the information about them tends to be hazy. So let’s delve more into the credit union and what makes these two financial institutions different.

A financial advisor can explain how credit union membership and services might fit into your broader financial strategy, especially if you’re comparing banking options.

What Is a Credit Union?

For starters, credit unions are not-for-profit organizations. They get their funding through their account holders, or members, people like you and me. These account holders, whether checking or savings accounts or something else, are members and partial owners of the credit union.

If a credit union does make a profit, that amount is invested back into the organization or paid out to members as dividends. Plus, as a not-for-profit institution, a credit union doesn’t pay state or federal taxes. This allows them to provide better interest rates for their products.

Credit unions offer many of the same products as a bank, such as checking and savings accounts and loans. However, not just anyone can walk into a credit union and open up an account. Often you have to become a member of a credit union.

Depending on the specific credit union, you can become a member based on your employer, your family’s previous membership, your geographic area or your membership with another group like a place of worship or school. These conditions are known as the Field of Membership (FOM).

Because of this setup, credit unions tend to be more community and consumer-centered. This means that their services and offerings are more cooperative. Members work together and the credit union itself cooperates with members to provide and improve services.

With a multitude of different credit unions vying for your interest, SmartAsset’s banking experts came up with a well-rounded list of the top credit unions.

Credit Unions vs. Banks

Credit Union vs. Bank

	Credit Unions	Banks
Size & Community	Limited to smaller communities like religious organizations or companies	Often nationwide, sometimes worldwide
Income Stream	Not-for-profit Move money around to benefit consumers	For-profit Make money off of consumers’ deposits and interest rates
Products & Services	Can offer standard banking accounts May offer loans, but amounts are often less than banks	Offer a wide variety of financial products
Physical Availability	Limited access, since they’re confined to a specific area usually Credit unions can partner together to offer more services Must be a member to bank with a credit union	Widespread ATMs and physical branches throughout the country/world Almost anyone can become a customer
Structure	Owned by customers who are also members All members get a vote in deciding the board of directors Customers/members can run for the board	Board of directors is decided by current directors & bank’s stockholders The more stocks someone owns, the more votes they get Customers do not get a say in the bank’s board unless they own stock
Affordability	Generally have higher earning interest rates and lower loan interest rates	Generally, charge higher account maintenance fees and fees for foreign ATM usage
Deposit Insurance	NCUA insured on deposits up to $250,000	FDIC insured on deposits up to $250,000

Difference in Size

The main difference between credit unions and banks is their size. Banks operate across the country and even worldwide, while credit unions focus on smaller, local communities. To use a credit union’s services, you usually need to become a member, which is often limited to people in specific towns, groups, or workplaces.

Differences in Products & Services

This size difference also reflects in what each institution is able to offer to their customers. Banks can offer a wide range of financial services. This includes checking accounts, savings accounts, business credit cards, business loans and more.

While there are credit unions that can offer a solid variety of products, like credit union credit cards, their range tends to be more limited than a bank’s. This is also coupled with the fact that banks are for-profit institutions. Banks make money from their services, while credit unions move money around to benefit their consumers.

Credit unions also often work together to provide more resources for their members. Since credit unions are smaller, they can’t provide hundreds of ATMs or branches. So to combat this, they can share spaces and ATMs with other credit unions, benefiting more than one union.

Differences in Structure

In terms of higher-up structure, both credit unions and banks have boards of directors. A bank’s board consists of directors decided by current directors and the bank’s stockholders. Since stockholders have partial ownership of the company, they get a say in how it is run. The more stocks someone owns, the more votes they get. A bank’s customers can own stock in the bank, but simply being a customer does not have much decision-making power.

On the other hand, credit unions are owned by their customers who are members of the credit union. So if you become a member of a credit union to open up a checking account, you gain partial ownership of the credit union. You then gain a vote in electing board members. If you so choose, you could also run for a board position as well.

When to Choose a Credit Union or a Bank: Common Examples

A credit union can be a good choice if you value personal service and want to save money on fees or loan rates. For example, if you’re planning to take out a car loan or a mortgage, credit unions often offer lower interest rates than banks. They also tend to charge fewer fees on checking and savings accounts, which can help you keep more of your money over time.

If you travel frequently or move often, a bank may be the better option. National and regional banks usually offer more ATMs, better mobile banking apps, and a larger network of branches. This makes it easier to access your money, pay bills, or get help no matter where you are. Banks also tend to provide more services for small businesses or people with complex financial needs.

You might also consider a bank if you want everything in one place. Banks often offer credit cards, investment accounts, and business services along with personal checking and savings. This makes it easier to manage multiple accounts under one login or mobile app.

Some people use both a credit union and a bank. For instance, they might keep a credit union account for better savings rates and use a bank for convenience and everyday spending. The best choice depends on your goals, how you use your money, and which services matter most to you.

Which One Is Better?

A client speaking with a bank teller at a branch.

Of course, banks and credit unions are both going to have their own drawbacks. Which one is better will ultimately come down to you and your financial preferences. But let’s look at some of the pros and cons of each.

Availability

Since banks work on a for-profit basis, they tend to be much larger institutions. That way, they can offer a wider variety of financial services. So if you want to have all your accounts in one place, a bank may provide the better option. Plus, a bank can usually handle larger accounts and more assets better than a credit union.

Due to their limited income and geographic coverage, credit unions can’t offer financial services to the extent that banks can. They tend to have fewer ATMs available to customers, plus limited online banking offerings. Without the bandwidth, credit unions can’t put as much time or money into perfecting a website and account portals.

Credit unions also will have fewer physical branches. This is more understandable though since credit unions are meant to serve smaller communities. However, if you suddenly need a branch while traveling, you’ll likely be out of luck.

The upside to credit unions’ more limited reach though, is a more personalized customer service experience. As a credit union member, along with other customers and employees, you gain access to more personal, community-like banking. Keep in mind that you can also find this kind of service at a smaller bank, too.

Lastly, don’t forget that in order to open an account at a credit union, you have to be a member of the credit union.

Affordability

When it comes to rates, a credit union can have big banks beat. As a not-for-profit institution, a credit union does not have to pay state or federal taxes. This leaves money free for lower loan rates and higher earning interest rates for credit union members.

Credit unions also tend to offer lower fees for things like account maintenance and ATM use. You should still check what fees a credit union might charge though, in comparison to your bank.

Bottom Line

While comparing credit unions and banks isn’t exactly apples to oranges, it would be unfair to pick a clear winner. Both kinds of institutions have offerings the other one doesn’t. Plus, not all consumers want the same thing when it comes to financial services. You might want the customer-tailored community of a credit union more while your neighbor values big banks’ up-to-date technology and online offerings.

Tips for Opening a Bank Account

Have more financial questions? You may want to work with a financial advisor who can help you grow your wealth or make a plan to manage your finances. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
It isn’t always easy to make a financial decision. From life insurance to credit cards, there are so many options to choose from! Bank accounts are the same way, but you can certainly find the right one for you. You have to first decide what you really want from a bank account before you start looking. For example, deciding you want the availability of physical branches knocks out online banks from your search.
Once you’ve zoned in on more specific banks, take a look at their offerings. If you want a full suite of financial products, do they offer more than just simple checking accounts? Do their products come with no fees or high-interest rates? Taking a look at specifics will help you make a better decision.