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Bank vs Credit Union

Updated on April 18, 2013

Does thinking about your bank give you a warm, fuzzy feeling? If the answer is no, you are not alone. After getting socked with ATM fees, check fees, overdraft fees, and low balance fees, you get to earn a lousy interest rate on savings and get treated like a nuisance every time you walk through the door. Why not change banks? Well, chances are pretty good that the one down the street is just as bad. But why not go with the non-bank bank? I’m talking about a credit union.

Differences between banks and credit unions

Should you choose a credit union over a bank? Many people don’t understand the difference between the two, so let me highlight some of the differences so you can make an informed decision.

  • redit unions are member owned, meaning that if you have an account, you are a part owner (like a shareholder). Banks are typically corporations, run by a board of directors. The account holders are simply customers.
  • Credit Unions are non-profit. This explains why there are fewer banking fees, and the interest rates tend to be better. Banks, on the other hand, are in business to make a profit. Like all corporations, banks have shareholders and those share holders expect (and demand) a dividend.
  • Other than turning down someone with a low credit score, banks generally don’t discriminate against prospective customers. Credit Unions, on the other hand, have membership requirements. You may have to work for a certain employer, or live in a certain area. In fact, it is entirely possible that you are not eligible to join a credit union.
  • Because of the membership requirements, most credit unions tend to be small and not part of a national chain. They also may not offer the range of services that a national bank chain can offer. And if you travel around the country, accessing you money while out of town may be difficult.
  • Unlike banks, credit union deposits are not FDIC insured. Instead, they are insured through the National credit union Share Insurance Fund. This is backed by the federal government, and has the same effect as FDIC insurance (your deposits are insured).

Since the credit unions are member owned, there tends to be a much higher level of customer service. And while you may get great customer service at a small, locally owned bank, the same cannot be said of the big national chains. Because of their size, the big national banks tend to treat you as just a number, not a valued customer. So, if you value customer service, a credit union may be right for you.

On the flip side, the small local nature of the credit union can be their Achilles heel as well. When you do your banking, will you need online services? Nationwide ATM access? The ability to move money between multiple accounts at multiple institutions? If so, you may be out of luck at a credit union. And while in theory a credit union should be able to offer better interest rates on loans than a bank, in practice the national bank chains can often offer just as low rates due to the sheer volume of business that they handle.

I must also point out that in the past few years, there has been the emergence of a new player in the world of banking. These are the online banks, such as ING. They are banks in the traditional sense, but generally have no “brick and mortar” locations; everything is done online. Because of the lack of banking location, business overhead is very low, allowing the online banks to offer great savings rates and some of the lowest loan rates around.

So as you can see, the decision to go with a bank or credit union is not as simple as it may seem. Ultimately, what you need in banking will be the determining factor. Be smart about your choice: do your homework on different banking institutions, and then make a decision based on your research.

I hope you have enjoyed this hub. Thanks for reading!


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    • profile image

      Brian McCue 3 years ago

      Nice article! Many credit unions belong to large surcharge free ATM networks, offering over 28,000 locations, more than any bank. Others belong to the Shared Branch Network, sharing over 5,200 locations, making them very convenient while still focused on their community. To find out more, visit

    • The Frog Prince profile image

      The Frog Prince 4 years ago from Arlington, TX

      Good analysis of the pro's and con's. Being a business owner I use a bank for commercial reasons and my credit unions for my personal obligations.