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Learning-Center

Credit Unions vs. Banks: Which Is Best for You?

Figuring out how to best save up your money 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?

As previously mentioned, there are benefits and drawbacks to both organizations. However, since most people know what they’re getting into with a big bank, we’ll go over some of the benefits a credit union has to offer in comparison. Credit unions are not-for-profit organizations that are usually linked to certain communities or groups. This means they can offer a personal experience with some more generous financial benefits, such as:

  • High quality, personalized customer service
  • Financial education programs
  • Lower fees
  • Higher interest yield
  • No minimum balance requirements

You might be wondering how a credit union is able to achieve all this. Most of it is due to their not-for-profit nature. Any profit is redistributed to all members through interest returns or other means, and there is a lot of cooperative support between members in various forms since members are essentially all part owners of the credit union.

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, federally insured credit unions are protected by the National Credit Union Administration (NCUA), 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 ensures 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, and potentially more so as older software architecture is more difficult to exploit and hack. You can rest assured that your money and personal information are as safe with a credit union as with a bank.

Are there any downsides 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 downsides?

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 downsides 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 CONS
  • Up to $250,000.00 ensured
  • Fees are more expensive, numerous, and at times hidden
  • Potentially more services offered
  • Relatively low interest returns
  • Robust credit card perks
  • Lackluster customer service
  • Modern tech and apps
  • Lack of high quality financial education

 

CREDIT UNIONS

PROS CONS
  • Up to $250,000.00 ensured
  • Fewer loan options
  • Cheaper and fewer fees
  • Bare-bones credit card perks
  • Higher interest returns
  • Personalized customer service
  • Informative financial education
  • No minimum account deposit

 

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 are assured to 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 or seeking a student loan from one, then CUSelect has you covered.

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*APR = Annual Percentage Rate

In order to apply for a loan, you must first pick an individual credit union from which you wish to borrow. You can apply for the loan without being a member of the credit union you select, but you will need to become a member of that credit union in order to receive a funded loan. Therefore, it's important that you select a credit union that you will be eligible to join. Credit union membership requirements can include where you live, work, or attend school. Results are based on membership criteria provided by individual credit unions and do not imply a guarantee regarding accuracy or eligibility to join the listed credit union(s).

Calculations are based on the lowest possible rate and available repayment terms per lender. Rate estimates are based on credit information entered by the user and will not impact your credit. During the application process, a hard credit inquiry will be performed to provide exact rate information. Repayment calculations assume immediate full repayment. View the full range of rates and terms by visiting your credit union's website using links listed for each credit union above.

Using the free student loan refinance calculator does not constitute an offer to receive a loan and will not solicit a loan offer. Any payments and savings will depend on the actual amounts for which you are approved, should you choose to apply. This calculator is provided for educational purposes only and should not be relied upon as financial advice. Always consult your credit union or financial advisor when making your decision.

IMPORTANT NOTICE for refinance borrowers: By refinancing federal student loans, you may lose certain borrower benefits from your original loans. These may include interest rate discounts, principal rebates, or some cancellation benefits that can significantly reduce the cost of repaying your loans. Please review this important disclosure for more information.

Your actual rate within the range stated will be disclosed upon approval. Student borrowers may apply with a creditworthy cosigner which may result in a better chance of approval and/or interest rate.