Banks and credit unions serve different people, for different reasons

Banks are for-profit institutions owned by shareholders. Credit unions are nonprofit cooperatives owned by their members. That structural difference shapes who uses each one and what they get in return. A bank's goal is to generate profit; a credit union's goal is to serve its members at cost. This means the people who benefit most from each type are not the same.

Banks tend to attract people who want convenience, breadth of services, and access to credit products. Credit unions tend to attract people who prioritize lower fees, better savings rates, and a relationship with a local institution. But the real dividing line is often simpler: where you work, where you live, or which one your family has always used.

Key Takeaways

  • Banks are for-profit and owned by shareholders; credit unions are nonprofit and owned by members, which affects fees, rates, and service priorities.
  • Banks offer more branches, more ATMs, and more specialized products like investment accounts and business banking; credit unions typically offer lower fees and higher savings rates.
  • Credit union membership is restricted by field of occupation, employer, geography, or family connection; bank accounts are open to anyone.
  • Most people use banks because they are ubiquitous and require no membership criteria, but people who may have access to for credit unions often save money on fees and earn more on deposits.

Who uses banks and why

Banks serve the broadest population because anyone can open an account. You do not need to work for a specific employer, live in a specific place, or belong to a specific group. This accessibility is the main reason most people in the United States have a bank account.

People use banks for checking and savings accounts, debit cards, credit cards, mortgages, auto loans, and investment products. Large banks like Chase, Bank of America, and Wells Fargo operate thousands of branches and tens of thousands of ATMs, so a customer can deposit cash or withdraw money almost anywhere. This network matters to people who travel, move frequently, or need to handle cash regularly.

Banks also offer services that credit unions typically do not: investment accounts, brokerage services, wealth management, and business banking with complex features. Someone starting a business, managing a large investment portfolio, or needing specialized lending products will often need a bank.

Who uses credit unions and why

Credit union membership is restricted. You can only join if you meet the field of membership criteria, which varies by credit union. Some credit unions serve people who work for a specific employer—teachers, government employees, nurses. Others serve people who live in a specific county or region. Still others serve families of existing members or people who work in a specific industry.

People who may have access to for credit unions often choose them because fees are lower and savings rates are higher. Because credit unions are nonprofits, they return profits to members in the form of lower loan rates, higher deposit rates, and fewer or no monthly fees. A credit union checking account might have no monthly maintenance fee, while a bank account might charge $12 per month unless you maintain a minimum balance.

Credit unions also tend to be more flexible with lending. A person with a thin credit history or a recent financial setback may find it easier to get a personal loan or credit card from a credit union than from a bank. Credit unions often know their members personally and may consider factors beyond a credit score.

How membership and access differ

Bank accounts require only an ID and proof of address. You can open an account in person, online, or by mail. There is no membership process and no waiting period.

Credit union membership requires that you meet the field of membership. If you work for an employer served by the credit union, you provide a recent pay stub. If you live in a served area, you provide proof of address. If you are a family member of an existing member, you provide documentation of the relationship. Some credit unions charge a one-time membership fee (often $5 to $25) and require a small deposit to open a share account, which functions like a savings account.

Once you are a member, you can open checking and savings accounts just as you would at a bank. But if you move out of the service area or leave the employer, you may lose membership and be required to close your accounts. Banks have no such restriction.

The cost difference between banks and credit unions

Banks generate revenue from fees and from the spread between what they pay depositors and what they charge borrowers. This means they charge monthly account fees, overdraft fees, ATM fees, and wire transfer fees. They also pay lower interest rates on savings accounts.

Credit unions, being nonprofits, charge fewer fees and pay higher rates. A typical credit union savings account might pay 0.50% annual percentage yield (APY) on balances, while a typical bank savings account might pay 0.01% APY. A credit union checking account might have no monthly fee, while a bank checking account might charge $12 per month.

The difference compounds over time. A person who keeps $5,000 in savings and writes 20 checks per month will save roughly $150 to $200 per year by using a credit union instead of a bank—not counting the higher interest earned on the savings balance.

Why some people use both

Many people maintain accounts at both a bank and a credit union. They might use the credit union for savings and personal loans because the rates are better, and use the bank for checking and credit cards because the bank has more ATMs and online tools.

Someone who moves to a new city might keep their original bank account for online bill pay and direct deposit, then open a credit union account once they establish residency in the new location. A person who changes jobs might lose credit union membership and switch to a bank, or join a new credit union through their new employer.

The two systems are designed to coexist. Banks compete on convenience and breadth of service. Credit unions compete on cost and member service. A person's choice often depends on what matters most to them at a given time.

Frequently Asked Questions

Can I use a credit union ATM if I bank at a bank?

Not directly, but many credit unions participate in shared branching networks and ATM networks. If your bank is part of a network like CO-OP or Allpoint, you can use ATMs at participating credit unions without a fee. Check with your bank about which networks it belongs to.

What happens to my credit union account if I move?

It depends on the credit union's field of membership rules. Some credit unions allow you to stay a member even if you move away. Others require you to close your account. Contact your credit union before you move to find out their policy.

Do credit unions have online banking?

Most do, though the platforms are often simpler than those at large banks. Smaller credit unions may have fewer mobile app features. If online banking is important to you, ask about the credit union's digital tools before you join.

Is my money safer in a bank or a credit union?

Both are insured by the federal government. Bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account. Credit union deposits are insured by the National Credit Union Administration (NCUA) up to the same amount. The protection is equivalent.

Can I get a mortgage from a credit union?

Yes. Many credit unions offer mortgages, auto loans, and personal loans. Credit union loan rates are often lower than bank rates, but the process process may be slower because credit unions have fewer loan officers and process applications manually rather than through automated systems.