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Credit unions are nonprofits that are owned by members, offer low interest rates on loans and high interest rates on savings accounts, but require you to be a member. Banks often have more branches and anyone can open an account.
Credit unions and banks are similar, but credit unions are nonprofits that are owned by members. Credit unions can be beneficial for those looking for low interest rates on loans or high interest on savings accounts, but others prefer banks, which often have more branches.
Naturally, banks and credit unions are both among the best and safest options for savings, as they are both insured by the federal government.
While there used to be a larger discrepancy between banks and credit unions, there are fewer differences today. A growing number of credit unions now offer online banking and nationwide ATM access—features that were once exclusive to banks.
In the following table we cover the pros and cons of credit unions, laying out some of the most important aspects you should consider when choosing where to store your money.
| Pros and cons of credit unions | |
|---|---|
| Pros | Cons |
| Ownership: Credit unions are owned by their members, with members being able to vote on policies and decisions. | Online services: Some small credit unions lack the resources for extensive digital banking services. |
| Interest rates: Credit unions typically offer higher interest rates for savings accounts. | Availability: Credit unions often have fewer branch locations than national banks. |
| Lower fees: Many credit unions offer checking accounts with no monthly fees and no minimum balances. | Membership: To open an account at a credit union, you must meet certain requirements to become a member. |
What’s the difference between a credit union and a bank?
One of the most important differences is that banks are for-profit institutions and credit unions are strictly nonprofit. Banks are looking to earn profits for their investors, while credit unions are focused on serving their members with low-interest loans and high-interest savings accounts.
Here are some key differences between credit unions and banks:
- Membership: Anyone can open an account at a bank, while credit unions require membership to open an account.
- Fees: Credit unions generally have lower fees and minimum balances than banks.
- Interest: Interest rates for loans are often lower at credit unions, and rates for savings accounts are generally higher at credit unions.
If you’re considering opening an account at a credit union, look at the membership requirements before applying. Some credit unions limit membership to those who work at a specific company, live in a certain area or belong to a specific organization.
If you do decide to join a credit union, you’ll enjoy several unique advantages.
Credit union advantages
The limited membership and nonprofit status of credit unions allow for several unique advantages. Credit unions are beholden to their members and are able to provide some benefits that large banks typically don’t offer. Customer service at credit unions can also be better than at banks since their primary concern is the satisfaction of their members.
High-interest savings
In general, credit unions offer higher interest rates than banks when it comes to savings accounts. This is because the purpose of a credit union is to serve its members, not shareholders and investors. Credit unions are also exempt from federal taxes, allowing them to give their members higher interest rates on savings accounts.
Collective ownership
Credit unions are owned collectively by their members. Members are considered shareholders in the credit union, and any profits generated are returned to the members. Any member in a credit union can also vote on policies and leadership decisions.
Lower fees
Credit unions generally require lower monthly fees and minimum balances. Many credit unions even offer checking accounts with no minimum balance or monthly fees. Other miscellaneous fees may also be lower than what you’d find at a bank, depending on the specific credit union.
Credit union disadvantages
While credit unions have a number of benefits, you’ll also want to consider the downsides that come along with a smaller financial institution. For example, those who travel frequently may be left without a nearby branch or fee-free ATM. Credit unions may also be slower to adopt new technology that makes banking simpler and more convenient.
Fewer branches and fee-free ATMs
Many credit unions have fewer branches and ATMs than large national banks. For people who do a lot of traveling, this can be an issue. You may end up finding yourself paying a premium to access your money through an ATM from a different organization.
Limited membership
When joining a credit union, you must first meet certain requirements to become a member. Requirements may include living in a certain location or working for a specific company. Credit unions are required to limit membership to a defined group by the Federal Credit Union Act of 1934.
Limited online services
Credit unions are often unable to offer as many services as some of the larger banks do. This can be most apparent when it comes to online banking. Some credit unions may not offer online or mobile banking at all, so members must visit a branch or an ATM for their banking needs.
Do credit unions offer credit cards?
Yes, credit unions do offer credit cards. Credit cards from credit unions may not get the attention that those from large banks do, but they can be a great option for those looking to improve their credit.
In general, fees and interest rates from credit unions tend to be lower than those from banks because of their nonprofit nature and business structure. Many credit cards offered by credit unions have no annual fees at all when compared to banks. However, a credit union card is unlikely to offer the same level of rewards and benefits that a card from a large bank does, such as airport lounge access.
Even if your credit union is small, its credit cards are likely issued on major networks such as Mastercard and Visa—which means they will be accepted anywhere that the network is. Credit union cards even have a higher rate of approval, especially for existing members of the credit union.
Whenever you apply for a credit card, you’ll want to look at your credit report to see how a new card will affect your credit. If your score isn’t where you want it to be or your credit report contains inaccurate information, you may want to work with a credit repair company first. The credit repair consultants at Lexington Law Firm are knowledgeable and skilled with the credit repair process, and can help you repair your credit.
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