What’s the Difference Between a Credit Union and a Bank?

Credit unions vs. banks—how the two financial institutions differ and why only one is built entirely for its members.

The first major difference between credit unions and banks is that credit unions are not-for-profit financial institutions owned by their members. Banks, on the other hand, are for-profit institutions owned by their shareholders.

That distinction is important. Credit union earnings are used to provide members with higher savings rates, lower loan rates and sometimes even year-end dividend checks.

Conversely, bank profits benefit shareholders and they’re the only people receiving any dividend checks.

Field of Membership

Unlike a bank, each credit union is chartered to serve people sharing a specific common bond—often a set geographic area or employer group. This is referred to as a credit union’s “field of membership,” which consists of anyone eligible to join.

Despite certain restrictions on field of membership, there’s still at least one credit union that fits just about everybody.

Why Join a Credit Union?

And that’s a good thing because joining a credit union rather than a bank has some distinct benefits:

Lower fees, better rates

Federal credit unions are exempt from paying corporate income tax, meaning their account fees often are lower than banks. In fact, some credit unions have eliminated overdraft fees altogether.

Further, since credit union profits go back to members, credit union officials don’t have to worry about maximizing profits. They’re concerned about pleasing you—the credit union owners. As a result, credit unions are able to pay higher yields on savings products and to charge lower interest rates on loans.

Some credit unions also offer alternatives to payday loans, so if their members find themselves temporarily short of cash, they don’t have to visit storefront payday lenders that charge exorbitant fees and interest rates.

Products and service

Many credit unions are smaller than larger, regional banks. That means more personal service. Additionally, some credit unions offer financial literacy programs to help members better manage their money.

Worried about products? Credit unions generally offer checking and savings accounts, and many offer a variety of loans, including ones to help members purchase their homes.

Security

Concerned about how safe money deposited in a credit union is? Don’t worry. If a credit union is a member of the National Credit Union Administration, deposits are insured by its Share Insurance Fund for up to $250,000. That’s the same insurance offered by the FDIC.

Your Voice Matters

If you join a credit union, you have a direct say in its operations as a part owner. Credit unions answer to their members, all of whom have the opportunity to vote on matters such as electing a board of directors.