Banks vs. credit unions: How to decide where to keep your money

Your priorities and what you value in a bank will help you determine where to keep your money. Comparing banks with credit unions in your search might make sense.

Banks and credit unions both offer a number of financial products, including savings accounts and certificates of deposit (CDs). The main difference between the two is that banks are typically for-profit institutions while credit unions are not-for-profit and distribute their profits among their members. Credit unions also tend to serve a specific region or community.

There are pros and cons to opening a bank account with either a bank or credit union, but it’s important to know which more closely aligns with your needs. When you find the right bank account, it’ll be easier to save, manage the account and get access to helpful features.

Banks vs. credit unions

Banks

Advantages of banks

1. More locations: Brick-and-mortar banks may have branches and ATMs down the street from where you work or live. And larger ones may also have locations wherever you travel across the country.
2. Variety of options: Some of the largest banks in the country, such as Chase or Bank of America, are brick-and-mortar banks, but banks can also be small and local or regional and may provide more personalized service. There are also plenty of online-only banks for the digitally minded.
3. Advanced technology: Banks are a little ahead when it comes to technology, van Faassen says. They may offer more comprehensive mobile banking apps and special savings features, such as automated saving.
4. FDIC insurance: FDIC banks are insured for a standard amount of $250,000 per depositor, per FDIC-insured bank per ownership category.

Disadvantages of banks

1. Lower savings rates: Many of the large, traditional banks in the U.S. don’t offer competitive annual percentage yields (APYs) on their savings products.
2. High balance requirements or maintenance fees: Some banks are known for charging fees, though there are usually ways to waive them.

Credit unions

Advantages of credit unions

1. Higher rates: Credit unions are not-for-profit organizations owned by their members. “That’s the main difference between (banks and credit unions),” says Rutger van Faassen, head of marketing strategy at analytics provider Curinos. Credit unions typically provide better savings and lending rates, van Faassen says.
2. NCUA insurance: Federally insured credit unions are backed by the U.S. government. Your money is safe if a credit union fails. Check the NCUA’s Share Insurance Estimator to see how insurance rules apply to member share accounts, which can help you determine what’s insured and if any amount exceeds the coverage limits.
3. Personal connection: Credit unions tend to be local or regional and often service a specific community. As such, the service a credit union provides may be more personalized, and you may also be supporting an institution that upholds your values.

Disadvantages of credit unions

1. Limited access: Credit unions typically are local or regional and may not serve your area. It may not make sense to bank at a credit union that has no branches near you.
2. Higher rates may be available at online-only banks: Online-only banks, also known as direct banks, tend to have more competitive savings and CD yields.
3. Membership requirements: You might have to live or work in a certain region to become a member of a credit union. Or the field of membership, which is the common bond shared by the credit union members, might have other requirements.

Brick-and-mortar banks vs. online-only banks

There are advantages and disadvantages to both brick-and-mortar and online-only banks.

Depending on their size, brick-and-mortar banks may operate thousands of branches, just one or some number in between. Online-only banks, on the other hand, usually don’t operate any branches, opting instead to offer their products and services solely over the internet. Similarly to brick-and-mortar banks, some online banks offer accounts to customers anywhere in the U.S., while others only allow consumers in certain states or areas to open accounts.

Because they don’t have overhead costs associated with operating bank branches, online banks are able to attract customers by offering higher yields on savings accounts, money market accounts and CDs, though not all online banks offer competitive rates. Online banks are also known for not charging maintenance fees.

Brick-and-mortar banks sometimes offer signature guarantee services in the form of a notary or medallion signature stamp for transferring securities. Services such as these, along with safe deposit boxes, are why some consumers prefer to have accounts at brick-and-mortar banks.

Bank/credit union trends

• Branches are closing rapidly: A little more than 4 percent of bank branches closed from June 9, 2022 to June 30, 2023, according to Bankrate’s analysis of FDIC data. Also, more than 20,000 branches have closed since 2009, according to analysis of FDIC data.
• The decline of overdraft fees: Various banks and credit unions have either cut or plan to cut or reduce their overdraft fees. Alliant Credit Union, Ally Bank and Capital One are just a few of the financial institutions that have been at the forefront of this trend.
• The average overdraft fee decreased 11 percent from 2022 to 2023 to $26.61 according to Bankrate’s 2023 checking account and ATM fee study.
• More households are gaining access to bank or credit union accounts: In 2021, 4.5 percent of households were “unbanked,” meaning they had no bank account, according to the FDIC. While it’s still important to account for that 4.5 percent, the number of unbanked households is the lowest it’s been since the FDIC began the survey in 2009.
• Socially and environmentally conscious banking: Some financial institutions are becoming more conscious of their impact on the world at large, including where they invest their money. The Global Alliance for Banking on Values is a network of banks committed to prioritizing the environment and local communities. Many banks have also shifted from paper statements to paperless statements to reduce the amount of paper waste they produce.
• Americans lost nearly $8.8 billion to fraudulent scams in 2022, an increase of 30 percent in fraud losses compared with 2021, according to the Federal Trade Commission.

Are banks safer than credit unions?

FDIC banks and NCUA credit unions are both backed by the full faith and credit of the U.S. government and offer similar protections. Both institutions protect up to $250,000 per depositor, per federally insured bank or credit union, per ownership category.

Other factors to consider

Here are some other things to consider when choosing between a bank and a credit union.

• Are branch and ATM locations convenient?
• Is the bank or credit union part of an ATM network?
• Does it reimburse some or all out-of-network ATM fees?
• Do customer-service hours work with your schedule?
• Check Bankrate’s reviews to research and compare banks.

List of most popular banks and credit unions by state

Bottom line

When shopping around for the right bank or credit union, always look out for fees, minimum balance requirements and what rates are offered on savings products. You might also want to consider accessibility — whether that be by branch location or by digital means.

Most consumers keep their bank account with the same institution for over a decade, so it pays to make a decision that you feel confident with. But don’t hesitate to switch to a new bank or credit union, especially when some institutions are offering yields that far outpace others.