Credit union vs. bank: How to choose the best option for you

Choosing where to keep your money is an important decision that can affect everything from how much you pay in fees to how easy it is to manage your finances day to day. Banks and credit unions aren’t the same, even though they serve similar functions. If you’re comparing your options between a credit union and a bank, a few key differences can help you quickly see what might work best for you.

In this guide, we’ll cover what banks and credit unions are, how they compare and tips for deciding which one may work best for you.

Understanding the basics of banks and credit unions

Banks and credit unions both offer common financial products like checking accounts, credit cards and loans. One thing that sets them apart is who owns them. That single difference helps shape your rates, your fees and your overall banking experience.

What’s a bank?

A bank is a for-profit financial institution owned by investors or shareholders. One common goal that banks have is to grow profits for their owners, making them profit-driven financial institutions. Banks make money through fees and interest on products they offer like checking accounts, savings accounts and loans.

What’s a credit union?

A credit union is a not-for-profit cooperative (co-op) owned by its members. That means a credit union answers to the people who use its services rather than investors or shareholders. Any profits get reinvested into the credit union. 

That often shows up as lower fees, better rates or improved service. “Since we’re member-owned and not-for-profit, we’re designed to return value to our members,” says Sun Bayless, Senior Vice President of Membership and Deposit Products at Navy Federal Credit Union. “That value comes through higher savings dividends, and lower lending rates and fees on lending products.” 

This focus on serving members is one reason people like banking with credit unions. Most credit unions have membership eligibility requirements, so they aren’t open to everyone. 

Who can join a bank or credit union?

Banks generally allow anyone to establish an account. To join a credit union, you typically need to be within the “field of membership.” Your eligibility can be based on factors like where you live, where you work or if you have a connection to a current member. 

While many people assume credit unions are difficult to join, “the reality is that many people may qualify and not even realize it,” Bayless says. Navy Federal, for example, serves the military community and their families. Once you qualify and join a credit union, you’re a member, not a customer. That distinction can come with real perks.

Are fintech banking companies the same as a bank or a credit union?

No, fintech companies like Chime and SoFi aren’t the same as banks or credit unions. A fintech is a financial technology company that offers banking tools like spending accounts, savings features or budgeting apps. But fintechs are considered a separate type of financial provider because they don’t usually hold your money directly. Fintechs partner with banks behind the scenes to provide those financial services. Your funds may still be federally insured, but the financial institution they’re partnering with is providing those protections.

Key similarities between credit unions and banks

Despite their differences, banks and credit unions have a lot in common. Both offer many of the same everyday products, and both come with strong federal protection for your money.

Similar financial products for everyday banking needs

Banks and credit unions both carry products like checking accounts and savings accounts. They can also offer loans for bigger purchases like cars, homes or business expenses.

Identical federal protection limits (up to $250,000 per depositor)

One of the biggest similarities between banks and credit unions is how your money is protected. Both are backed by the federal government, up to the same dollar amount.

Reasons a credit union may be a better fit for you

Credit unions don’t answer to shareholders, and that often translates into better benefits for members. Here are a few areas where credit unions tend to have an edge over banks.

Lower interest rates when borrowing

Many credit unions are able to offer lower interest rates on loans because they don’t answer to investors who are focused on profits. That can help members save money on auto loans, mortgages, personal lines of credit and more.

Higher annual percentage yields on savings accounts

Credit unions put profits back into member benefits. As a result, many credit unions offer higher annual percentage yields (APY) on savings accounts, money market accounts and share certificates or certificates of deposit (CDs) than banks. A higher APY means your money has the potential to earn more over time.

Favorable fee structures

Credit unions are known for having favorable fee structures and more flexible lending criteria than banks. Many charge fewer monthly fees and lighter overdraft penalties, too. Credit unions aren’t trying to maximize their profits for stakeholders, so they don’t need to charge a lot of fees.

Member-centric and community-centered focus

Credit unions are focused on serving members rather than driving profits, which often creates a more community-centered approach to financial services. Service is a priority because the people who use the credit union are the same people who own it. That focus can affect everything from how decisions are made to how problems are resolved. Many credit unions also support members through financial education resources and tools.

Reasons a bank may be a better fit for you

Banks have their own strengths, especially for people who value convenience or specialized financial products. Here are a few areas where banks tend to stand out.

Convenience and widespread access

Many large banks offer convenience and widespread access, with branches and ATMs in cities across the world. That can be helpful if you travel often or move between states. Some credit unions expand their access through shared branching networks and surcharge-free ATM alliances. This can let you use services at partner locations even if your credit union isn’t nearby.

Advanced online tools and technology

Banks—especially larger national banks with bigger budgets—often invest heavily in advanced online tools and mobile app development. That can result in more built-in features like budgeting tools or more frequent feature updates.

More options for complex commercial business needs

Larger banks may offer more products and services for business owners. That includes things like specialized lending or cash management for bigger companies. If you own a business that has more advanced financial needs, for example, compare what each option offers to see what’s available.

High savings yields through online-only banks

Some online-only banks offer high savings yields that can beat what you’d find elsewhere. These banks don’t have to deal with the cost of having physical branches, so they may be able to offer better savings rates. It’s worth comparing rates across banks and credit unions before deciding where to put your money.

Credit union vs. bank: differences at a glance

To sum up, here’s a quick side-by-side comparison of credit unions vs. banks in key areas like ownership, fees and accessibility.

Picking the right financial institution for you

There isn’t one better option when choosing between a credit union and a bank. Many people use both at the same time for different purposes. “Using both is certainly an option,” Bayless says. “One financial institution might offer a specific product that fits your financial needs better.” Ultimately, the right choice depends on your financial goals and priorities. 

Here are some situations when each type of financial institution might make sense:

Navy Federal has been serving members’ needs since 1933

If you’re considering banking with a credit union, Navy Federal is one option to consider for military members, Veterans and their families. We’ve served the military community for more than 90 years. 

As a credit union, Navy Federal is owned by our members, not investors. We focus on providing competitive rates, financial education resources and a member-first approach. We meet you where you are in your financial journey, and we build our products and services to support the realities of military life like moving frequently or managing finances during deployments.

Wondering if you qualify to join Navy Federal? It only takes a minute to check your eligibility and learn more about membership.