Difference Between Banks and Credit Unions

Banks and credit unions may look similar at first glance: both store money, open accounts,
issue cards, and offer loans. But behind this outward similarity are different operating principles,
different ownership structures, and different goals. Understanding these differences makes it
easier to choose where to keep your money and where it is more convenient to bank —
especially when you consider your financial habits, your attitude toward risk, and your personal
values within the U.S. financial system.

What Banks Are

Banks in the United States are commercial financial institutions that accept deposits and issue
loans to individuals, businesses, and government entities. They include large national banks,
regional banks, and small local banks. As a rule, banks are owned by shareholders — either
directly or through holding companies. Federal and regional banking laws regulate their
operations, and they are overseen by agencies such as the OCC, the Federal Reserve, the
FDIC, and state regulators.

Most banks are insured by the FDIC, which is an independent federal agency that protects
depositors if an insured bank fails. Standard FDIC insurance covers at least $250,000 per
depositor, per insured bank, for each account category.

What Credit Unions Are

Credit unions are nonprofit financial cooperatives that accept deposits and issue loans. They
are owned by their members, not by outside investors. The Federal Credit Union Act of 1934
defines such organizations as associations created to encourage savings and provide
affordable credit to people with modest incomes.

The work of federal credit unions is overseen by the National Credit Union Administration
(NCUA). It issues its charters, monitors compliance with regulations, and insures most deposits.

Members of a credit union are usually connected by a common bond — for example, working
for the same employer, belonging to the same organization, or living in the same community.
According to NCUA data, by the end of 2024, federally insured credit unions managed about
$2.31 trillion in assets and operated just over 4,400 institutions. This is much smaller in scale
than the commercial banking sector, but credit unions remain an important part of the U.S.
financial system

Ownership Structure

One of the main differences between banks and credit unions is who owns them. Banks are
commercial organizations owned by shareholders. These shareholders may be bank customers
or may not use its services at all. They elect the board of directors, which is legally required to
protect the owners’ interests and increase the company’s value. A bank’s profit is either paid out
to shareholders or reinvested in the business.

Credit unions operate under a different, cooperative model. Each member usually holds one
share, regardless of how much money they have in their account. Members elect the board of directors, which is composed of volunteers and serves the interests of all members, not outside
investors.

Since credit unions do not pay dividends to shareholders, any surplus that remains after
expenses and required reserves is returned to members. This comes in the form of lower loan
interest rates, higher savings yields, and reduced fees.

How Each Institution Makes Money

Both banks and credit unions earn most of their income from the difference in interest rates.
They accept deposits and pay interest or dividends on them, while charging higher rates on
mortgages, auto loans, personal loans, and credit cards. The difference between what they pay
on deposits and what they earn on loans is called the net interest margin. This is the main
source of income for both types of institutions.

In addition to interest income, these institutions also earn non-interest income. Banks charge
fees for account maintenance, overdrafts, card transactions, wire transfers, and services such
as asset management or business cash management. Large banks may also earn money from
trading securities and underwriting bonds.

Credit unions also collect fees for account services, cards, and loans. But because they operate
in their members’ interests, their fees are usually lower and capped, so they do not place an
excessive burden on customers.

Membership Requirements

Opening a bank account is generally available to anyone who passes identity verification and
meets the basic requirements. Banks are required to verify a customer’s identity, check them
against sanctions lists, and follow anti–money laundering rules — the Bank Secrecy Act and
related regulations mandate this.

Credit unions operate differently. They can serve only those who meet their membership
criteria. These criteria are outlined in the credit union’s charter and approved by regulators in
accordance with the Federal Credit Union Act and NCUA guidelines.

Membership criteria can vary: working for a specific employer, belonging to a certain profession
or labor union, living in a particular geographic area, having a qualifying family relationship, or
being part of an approved partner organization.

Interest Rates on Savings and Checking Accounts

The difference between banks and credit unions is clearly visible when you look at deposit
interest rates. Banks are commercial organizations with high operating costs, so at large
national banks, the regular rates on savings and checking accounts are often low. Higher rates
are usually offered only to those who maintain a large balance or use special products, such as
high-yield online savings accounts.

Credit unions work differently. They are nonprofit, and all of their profits go back to their
members, which is why rates on share accounts and share certificates are usually higher.
Industry reports and federal data confirm this.

Some credit unions offer special high-yield checking accounts. To qualify for the higher rate, you
often need to meet a few simple monthly requirements, such as making a certain number of
debit card transactions or enrolling in electronic statements.

Loan Rates and Borrowing Costs

Loan pricing is another area where banks and credit unions operate differently. Banks set
interest rates based on the cost of funds, credit risk, capital requirements, and competition.
Sometimes large banks offer low rates on mortgages or auto loans to attract customers, but
then compensate for this by charging higher rates on credit cards and unsecured consumer
loans, especially for borrowers with low credit scores.

Credit unions often try to make loans more affordable for their members. Long-term studies by
regulators show that average rates on auto loans and some unsecured consumer loans at credit
unions are often lower than comparable bank rates, especially for people with fair or average
credit. Because a credit union is owned by its members, its leadership has an incentive to keep
loan prices reasonable while maintaining the organization’s safety and stability.

Fees and Account Charges

Banks receive a significant portion of their income from fees. The most common ones include
monthly account maintenance fees, overdraft fees, insufficient funds fees, fees for using out-of-
network ATMs, and wire transfer fees. The Consumer Financial Protection Bureau has already
taken action against such “junk fees,” and many banks have been forced to reduce or remove
some of them. But even with these changes, fees remain an important source of income for
banks.

Credit unions also charge fees, but they are usually lower. In many credit unions, you can open
a free checking account if you set up direct deposit or maintain a small minimum balance. Some
credit unions offer lower overdraft fees or provide overdraft protection — for example, by
automatically transferring money from a savings account for a small fee. Boards of directors
regularly review their fee schedules, focusing on transparency and fairness rather than
maximizing profit.

Branch Networks and ATM Access

Large banks have wide branch networks across the entire country or at least in several states.
This allows customers to use thousands of branches and ATMs under one brand. Such access
is especially convenient for people who travel or move frequently. Public reports and news also
show that the largest banks actively invest in upgrading their branches and expanding self-
service options.

Credit unions usually operate on a smaller scale, so they have fewer branches. To make up for
this, many credit unions join shared branch and surcharge-free ATM networks. This allows their
members to withdraw cash at thousands of partner locations without additional fees.

Digital Services and Technology

Large banks often take leading positions in digital services. Their mobile applications usually
offer a wide set of features: real-time notifications, budgeting tools, card management, and built-in customer support. Such solutions require large investments in technology, cybersecurity, and
analytics, and large banks can afford this thanks to their high revenue.

Credit unions have also made noticeable progress in the digital space. Many of them already
offer mobile deposits, person-to-person payments, card management, and account alerts. Some
credit unions partner with fintech companies to provide modern features without having to
develop everything themselves.

But because credit unions are usually smaller than banks, their applications may differ in
convenience and available features. Therefore, before choosing a credit union, it is useful to
check how convenient and functional its app is.

Customer Service and Member Support

For many people, the quality of customer service is one of the main factors when choosing a
bank or a credit union. Large banks work with a huge number of clients, so they most often use
call centers, online chats, and standardized procedures. This format allows customers to
receive support around the clock, but because of the scale, it is usually not possible to speak
with the same representative again.

Credit unions, on the other hand, often focus on more personal service. Since their members
own them and operate within specific communities, staff members can often be more flexible,
for example, help resolve an issue with a small overdraft or arrange a more convenient payment
schedule, as long as this does not violate regulations. Customer satisfaction surveys show that,
on average, credit unions receive higher ratings for friendliness and individual attention.

Safety, Insurance, and Regulation

Deposit safety is one of the most important factors for any customer. At FDIC-insured banks,
eligible deposits are protected up to $250,000 per depositor, per bank, and per ownership
category. The FDIC explains these rules in detail in its materials and offers the EDIE online
calculator to help customers calculate their insurance coverage. The U.S. government fully
backs this insurance, but it does not apply to investments such as stocks, bonds, mutual funds,
or cryptocurrency.

In federally insured credit unions, deposits are called “shares” and are protected by the NCUA
through the National Credit Union Share Insurance Fund. The limit is the same — $250,000 per
member, per insured credit union, and per ownership category.

Both banks and credit unions must comply with capital requirements, undergo regular
examinations, and follow consumer protection laws such as the Truth in Lending Act, the
Electronic Fund Transfer Act, and the Truth in Savings Act. These rules exist to protect
customers and ensure the safety of their money.

Product Variety and Specialized Services

Large banks usually offer a very wide range of services. At one bank, you can open a checking
or savings account, obtain a certificate of deposit, take out a mortgage, an auto loan, a personal
loan, or a business loan. Banks also issue credit cards, offer investment and trust services, and
provide business solutions. Many large banks have separate departments that handle asset
management, commercial lending, or international operations.

Credit unions provide many of the same basic services, but they usually offer fewer specialized
products. Most credit unions offer checking and savings accounts, share certificates, auto loans,
personal loans, credit cards, and mortgages. Some large credit unions also offer business
banking services and investment products, but in smaller organizations, this is rare. Instead,
they often create niche solutions tailored to local needs, such as special loans for employees of
certain companies or members of local communities.

Community Impact and Local Involvement

Credit unions often play an important role in their communities. They help low-income people
access loans and contribute to local economic stability. Credit unions offer financial literacy
courses, support local schools, and sponsor various community events. They also create
products aimed at helping less affluent groups.

Banks also have responsibilities to society. Laws like the Community Reinvestment Act require
banks to assist the communities where they operate, including low- and moderate-income
areas. Many banks provide grants, support volunteer programs, and conduct educational
initiatives. Large banks often invest in affordable housing projects and community development
through specialized lending programs.

How to Choose Between a Bank and a Credit Union

Choosing between a bank and a credit union depends on how you use financial services. If you
value a wide national branch network, advanced technology, and a range of specialized
products, a large bank may be a better match.

If you care more about local service, member ownership, and the possibility of better everyday
rates and lower fees, a credit union can be attractive. You will need to confirm that you meet the
membership rules and that branch and ATM access fit your lifestyle.