The Difference Between a Bank and Credit Union

bank and credit unionThe first US bank was established in 1791 and was, rightly enough, called the First Bank of the United States. Although the First Bank closed its doors just 20 years later, it paved the way for dozens of major banks, hundreds of small community banks, and hundreds more local credit unions in America.

But while both banks and credit unions ostensibly perform the same services — namely providing checking and savings accounts, credit cards, and loans — the quality, variety, and cost of those services can vary greatly depending on the type of institution with which you bank.

Differences in Fundamental Structure

Overall, the main differences come down to the fundamental structure of each financial institution. Banks and credit unions are vastly different types of organizations, with different objectives and methods of reaching them.

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For the most part, banks tend to reflect the American corporate cliché of a business operated by a board of directors with shareholders to whom they must answer — and show a profit. Banks are generally obligated to pay its shareholders and investors, and it’s with those few that the bulk of the bank’s profit typically winds up. The goal of a bank is to make money.

Credit unions, in contrast, are cooperative institutions, meaning each credit union is owned (and controlled) by its members. Profits from credit unions are thus funneled back into the organization — and its members — rather than the pockets of investors. This doesn’t mean members receive a check each year, but rather, profits are returned to them through lower rates and fees. The credit union’s goal is to provide affordable banking services to its constituents.

Each Has Pros and Cons

Lower rates and fees are just one of the pros of banking with a credit union. Because credit unions don’t have to answer to shareholders and consultants with their eyes fast to the bottom line, they also tend to have more flexible credit requirements for their products than larger institutions. This can mean you’re more likely to get approved for auto loans or credit cards from your neighborhood credit union than the Big Bank down the road.

At the same time, since the credit union’s main goal is meeting the needs of its local community, that’s where it’s focus will tend to be. Members often need to meet certain eligibility requirements, such as residency in the community. Additionally, credit unions don’t typically establish branches or ATMs outside of its local area.

The diminutive nature of a local credit union also limits the number of financial products they can offer, particularly for those with larger portfolios to invest. For example, your average credit union may only offer one or two credit cards and may not have high-net-worth wealth management experts on staff.

Banks, on the other hand, have an eye to profit, so they often work toward reaching as a broad an audience as possible. This means your average Big Bank has an abundance of branches and ATM locations to ensure convenient access, some offering services worldwide. Banks are also more likely to participate in online lending networks, like those found on, which are used by those looking for multiple loan quotes at once.

Additionally, banks tend to provide the widest range of financial products (Chase alone has over a dozen credit card options) and can have a wealth of options for those with, well, a lot of wealth.

Of course, there’s another side to that thirst for profit than just a lot of ATMs. It also means you won’t get the same low rates and fees with a bank as with a credit union. Nor will you typically find that credit-union flexibility in a bank’s credit requirements for its financial products (unless it is specifically a subprime-focused bank).



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