Credit Union vs. Bank: Which One’s Best for You?

credit union vs. bank

If you’re shopping around for a checking account, savings, mortgage, or credit card, it can be hard to tell the difference between credit union and bank.

Banks and credit unions may offer similar products, but they are two differently run models. Each has its pros and cons, and depending on your needs and goals, either might be a good fit.

Take a look at this guide to determine which is best for you in the credit union vs. bank competition.

What is a bank?

Before deciding between bank vs. credit union, it is important to understand how each one works. To start: the biggest difference between credit union and bank is their business models. A bank is a for-profit business. When you go to a bank, you are working with a company whose primary goal is making money.

In order make a profit, banks borrow money from people like you and me, businesses, and from other banks at a low interest rate. Banks then loan out that money at a higher interest rate. If you have a savings account at a typical bank, you will have an interest rate around 0.01%. But if you get a mortgage loan from the same bank, odds are your interest rate will be around 4.65%.

Say someone gets a mortgage loan for $400,000 at 4.65%. At 4.65%, a bank earns almost $19,000 in interest. But to borrow the $400,000 from the savers, it only has to pay $4,000 in interest. The $15,000 spread is profit on the loan, which the bank uses to pay for operations, pay shareholder dividends, and invest in growing the company.

Banks work hard to bring in lots of customers and fund as many loans as possible. The more customers with checking and savings accounts, the more money they have to lend. And the more money to lend, the bigger the profit.

What is a credit union?

A credit union offers the same products as a bank and brings in revenue the same way, but credit unions are not-for-profit companies. Rather than bring in as much profit as possible to benefit shareholders, a credit union only needs enough revenue to cover operating costs.

Where individuals and investors own banks, members own credit unions – and each credit union customer is also a member. Members must be eligible to join based on the credit union’s criteria. Some credit unions are only for people who live in the area. Some are for people who work for particular companies. Others are for workers in specific industries or for individuals who support a certain cause.

I used to have an account at a credit union in Colorado just for people who worked for state or local government or lived in the area. In Portland, I belonged to a credit union for people in the Portland area. My last mortgage was for a house in Portland but from a credit union in Washington, D.C. To join, I had to make a $10 donation to a charity that supports military veterans.

But each time, I knew that my needs came before profits and was able to get better customer service and save money.

Which is safer?

To some, banks may feel safer because they are larger than credit unions, but that’s not the case. The United States government backs the checking, savings, and certificate of deposit accounts of banks and credit unions.

The Federal Deposit Insurance Corporation, or FDIC, backs bank accounts. The National Credit Union Administration, or NCUA, backs credit unions. Both offer very similar protections for your deposits, and both are regulated to help protect your money. In the event a FDIC member bank or NCUA member credit union fails and goes out of business, the government will reimburse you for your account value with interest.

Which offers the best interest rates?

Credit unions typically offer better interest rates for consumer accounts. Credit union checking and savings accounts often pay more interest and, loans usually charge less.

However, this is not always the case. Online-only banks regularly offer better interest rates on checking and savings than credit unions. And sometimes banks offer lower rates on loans when trying to draw in new customers.

Which offers the best products?

Because of their need to grow and profit, banks are more innovative and offer a wider range of services than credit unions. Again, this is not always the case but more of a general guideline.

Some large banks – including Chase, Citi, Bank of America, U.S. Bank, and Wells Fargo – offer an array of banking, borrowing, investing, and other services. Credit unions are often more focused on a few core checking, savings, CD, mortgage, and auto loan products. Some credit unions are more likely to offer personal loans than banks, but otherwise, banks tend to offer more diverse products.

Because of their larger resources, banks also tend to have better digital offerings, such as online and mobile banking. Credit unions are a little slower to adopt new banking technologies.

Which is right for you?

If you prefer to work with a smaller organization that is more likely to give you personal customer service, a credit union is the best choice. Being homegrown, locally managed, and operating as a non-profit is enough reason for many people to be loyal credit union customers for life.

If you prefer cutting-edge technology, self-service, frequently updated online banking and mobile apps, and the flexibility to have virtually every need met under one roof, banks are the right choice.

Personally, I prefer to have a checking and savings account at an online bank and an account at a local credit union for cash deposits. I’ll shop around each time I need a new loan.

There is no perfect answer for the credit unions vs. banks debate. The answer depends on your specific needs. The next time you need a new account and are deciding credit union vs. bank, shop around. Compare the rates, products, and available technology. If you do, you will find the right fit for you.

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LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
4.98% - 14.24%1$5,000 - $100,000
Check rate nowon SLH's secure site
8.00% - 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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