Figuring out how to best save up your money or find financing sources can be difficult to navigate with all the options set before you. One of the more immediate choices is between a bank or credit union, and you might be asking yourself, “What are the benefits of a credit union vs. a bank? Which one has lower interest rates on loans? Which one will earn me more money overall?”

Most people know what services your average, modern-day bank generally offers, but the benefits of a credit union are not so widely known. Depending on your situation, when you compare the benefits of a traditional bank to a credit union, the latter may be a better fit. We’ll go over why that may be below.

Which has better benefits, a credit union or a bank?

Most banks operate as for-profit financial institutions that answer to stakeholders. In this environment, the focus on profits influences everything from lending decisions to interest rates assigned to loans. Earnings are often returned to private investors or shareholders, not customers. Unlike credit unions, banks often maintain a distant, transactional relationship where customers exchange money for services.

But when you open an account at a credit union, you become part owner of a not-for-profit cooperative financial institution. Unlike bank customers, credit union members have voting rights that give them a say on matters related to the direction of the institution. But the real draw of not-for-profit credit unions is that profits are redistributed to members in the form of:

• High quality, personalized customer service
• No checking account minimums
• Financial education programs
• Lower and fewer account fees
• Higher earnings on deposit accounts
• No minimum balance requirements

Though these benefits may vary between credit unions, one significant and consistent advantage they have over traditional banks is their better interest rates.

Why Do Credit Unions Have Better Interest Rates?

Since credit unions exist to strengthen the financial lives of their members, the institution’s financial success is shared with the membership – which is why credit unions are known as “financial cooperatives.” For example, Member #1’s deposits might help fund Member #2’s low-interest rate loan. By focusing on returning value to the membership, credit unions are able to offer rates that beat those of traditional banks.

Plus, members typically have access to:

• More flexible lending decisions than traditional banks
• Personalized member support
• Free financial education resources

Better Loan Interest and Savings Rates Across the Board

Bank customers are unlikely to experience the rewards of belonging to a profitable institution – at least not in their bank accounts. Credit unions use account deposits and other earnings to provide members with competitively priced loan products and significant cost savings. In fact, you’ll often hear the phrase “people before profits” associated with credit unions.

The National Credit Union Administration (NCUA) publishes quarterly product comparisons, confirming what 100+ million members already know – credit unions offer better savings rates and lower borrowing costs across the board. On average, credit union members earn more on their deposits and pay lower borrowing costs in nearly all 23 loan and product categories.

Are credit unions safer than a regular bank?

After hearing that all members of a credit union also own it, you may think it a risky endeavor. However, the NCUA also protects federally insured credit unions, which ensures your deposits won’t be lost should the credit union fail. It’s essentially the credit union version of the Federal Deposit Insurance Corporation (FDIC), and as such it insures up to $250,000 in funds.

Some people might also have a concern over credit unions generally having behind-the-times software when compared to the big banks. Fret not, as credit unions are proven to protect your information to the same degree as the banks. You can rest assured that your money and personal information are as safe with a credit union as with a bank.

Are there any down sides of using a credit union?

So, if a credit union is able to protect your information and ensure your money to the same degree as popular banks, while keeping fees lower and earning you more, what are the down sides?

To be honest, there aren’t any real significant ones! The most legitimate “cons” are they may offer slightly fewer options for loans and credit card perks.

Other than that, most of the commonly attributed downsides are merely myths that could use some clearing up. For instance, a common misconception about credit unions is that it is hard to become a member to have access to their benefits. While credit unions once served very specific populations, membership today is generally very easy to attain. Just about anyone can join a credit union based on where they live, work, worship, or attend school.

Another false rumor is the difficulty involved when trying to access your money in a credit union. However, many credit unions have cooperative agreements which expand their ATM numbers far and wide, and there are various ATM locators you can use to find the nearest one with your respective credit union. Many credit unions also participate in shared branching, which allows you to access your account at another credit union branch.

All in all, there aren’t many genuine down sides to banking with a credit union.

Why choose a credit union over a bank?

At this point it should be clear that there are, in fact, many reasons to choose a credit union over a bank. There aren’t any genuinely impactful cons to speak of, and the amount of money earned through interest returns and reduced fees (both in frequency and amount) is potentially game-changing. Let’s look at the pros and cons of each option below:

BANKS

PROS Up to $250,000.00 insured Potentially more services offered Robust credit card perks Modern tech and apps

CONS Fees are more expensive, numerous, and at times hidden Relatively low interest returns Lackluster customer service Lack of high-quality financial education

CREDIT UNIONS

PROS Up to $250,000.00 insured Cheaper and fewer fees Higher interest returns Personalized customer service Informative financial education

CONS Fewer loan options Fewer credit card perks

Why doesn’t everyone use a credit union?

The reason more people don’t use credit unions could be they are simply comfortable and familiar with their long-standing relationship to their bank, or perhaps they are uninformed. Because really, there aren’t many reasons to avoid saving with a credit union, especially when you consider all their benefits:

• Higher Interest Returns: At face value, you should earn more money than you would investing with a traditional bank. A credit union’s not-for-profit, all-inclusive approach to profit redistribution ensures that their savings rates will be higher than the big banks’ across the board.
• Various Loan Types: There may be a few less options when it comes to the types of loans credit unions can offer compared to traditional banks, but they still provide the most widely demanded options. Most importantly, loan interest rates are significantly lower than what you’d find with a traditional bank.
• Personalized Experience: Credit unions are renowned for their customer service. As a member, you are part of a group that wants to support your financial needs and any concerns you may have. Financial education is also included in the form of online articles, in-person classes, and even one-on-one sessions.

If you’re a student and are interested in banking or investing with a credit union, we partner with leading credit unions across the country. And if you’re in need of college financing (or refinancing) options from a credit union, you can explore our student loan rate finder today!

This article was updated on April 1, 2024.