Integra Credit - Credit Union vs Bank: What's the Difference?

a sign communicating which should they use, a bank or a credit union

Post Written by: robert.jackson | March 3 2023

When it comes to choosing a financial institution for your checking, savings, and financial needs, you have two primary options: a credit union vs a bank. Although banks and credit unions offer similar services and products, they are actually two different types of financial institutions. Let's take a closer look at the similarities and differences between banks and credit unions.

What Is a Credit Union?

A credit union is a not-for-profit financial institution or cooperative that is owned by the people who utilize its financial services. The cooperative, not-for-profit structure of credit unions means they exist to help members with a shared bond achieve greater financial well-being. This doesn't mean credit unions are unprofitable. Instead, the profits generated by the credit union are used to further serve the member-owners in the form of more attractive rates and dividends.

What Is a Bank?

A bank is a for-profit financial institution licensed to accept savings and checking deposits. In addition to an array of lending products, banks can offer other financial services, such as:

Safe deposit boxes

Currency exchange

Individual retirement accounts

And more

Different Types of Banks

While retail banks that offer general banking services are the most prevalent, there are several other types of banks:

Corporate and commercial banks tailor their services to business clients, ranging from large corporate entities to small business owners.

Investment banks offer corporate clients complex financial transactions and services.

Central banks are independent institutions with governmental authority to oversee the monetary policy and money supply of a nation.

What Are the Differences Between a Credit Union and a Retail Bank?

The primary difference between banks and credit unions is the ownership structure:

Banks are owned by shareholders or investors, and

Credit union cooperatives are owned by owner-members.

This distinction underscores many of the variations between banks and credit unions.

Bank vs Credit Union's Primary Focus

Banks are guided by maximizing shareholder value. This doesn't mean banks overlook the needs of their customers. Instead, customer needs are aligned with products that increase shareholder value. In contrast, credit unions are focused on delivering a best-in-class member experience.

Credit Unions Typically Have Higher Deposit Rates Compared to Banks

When for-profit banks are profitable, their shareholders benefit in the form of year-end dividends and increased stock value. When not-for-profit credit unions are profitable, the profits are passed onto the member-owners in the form of dividends and:

Lower loan rates

Lower mortgage rates

Higher yields on deposit checking and savings accounts

Higher yields on CDs and other investment vehicles

Lower and fewer service fees

Banks Typically Have More Advanced Technology & Are More Accessible

In today's age of technology and mobile banking, banks have a clear edge over credit unions. While most banks offer innovations like mobile check deposit, peer-to-peer payment solutions, and biometric technology, fewer credit unions have the infrastructure to adopt these solutions. Banks are also larger, offer more branches, and have a larger ATM network, which makes these institutions more accessible.

Bank vs Credit Union's Qualifications to Join or Enroll

For the most part, anyone can join a bank as long as basic financial and citizenship criteria are met. However, to join a credit union, you must share a common bond and be within the institution's Field of Membership (FOM) based on the Federal Credit Union Act of 1934. Examples of FOM requirements include:

An employee of a specific employer

An employee within a specific field

A member of an affiliation or association, such as a civic organization or worker's union

A resident of a community, neighborhood, county, city, or other well-defined geographic boundaries.

A family member of someone who meets the criteria

Credit Union Members vs Bank Customers

Banks have customers. Credit unions have members who double as owners.

How Are They Similar?

Although credit unions and banks have several differences, they share similarities.

Banks and Credit Unions Offer Similar Products

Banks and credit unions offer a very similar lineup of products and services, such as:

Checking accounts

Savings accounts

Online banking

Direct deposit

Certificate of Deposits (CDs)

Credit cards

Debit cards

Money transfers

Mortgages

Home equity loans and lines of credit

Credit Unions and Banks Offer Deposit Safety

Both banks and credit unions offer depositors a level of safety in the form of insurance on the money deposited.

For banks, the Federal Deposit Insurance Corporation (FDIC) automatically offers standard insurance of $250,000 per depositor, per insured bank, for each account ownership category.

The National Credit Union Administration (NCUA) government agency manages and operates the National Credit Union Share Insurance Fund (NCUSIF), which acts similarly to the FDIC. The NCUSIF provides all members of federally insured credit unions with up to $250,000 of coverage for single accounts.

FAQs About Banks vs Credit Unions

Is a Credit Union Safer Than a Bank?

Both credit unions and banks are federally insured, so they’re considered equally safe. However, deposits at credit unions are insured by the NCUSIF, while deposits at banks are insured by the FDIC.

Are There Downsides to Using a Credit Union?

One perceived downside of credit unions is they tend to have fewer branches than traditional banks. To overcome this problem, simply find a credit union that is part of a shared branch network to avoid this issue.