Are Credit Unions Better Than Banks?

There’s not much more personal than personal finance, and choosing whether to keep your money at a credit union or a bank is a deeply individual choice. And while they both offer similar core services, credit unions—typically non-profit—stand out for their intensive focus on community.

But they’re not for everybody. Start by learning what a credit union is, and then see how they compare on multiple categories to find the institution that’s right for you.

What is a credit union (and how is it different from a bank)?

Credit unions are non-profit organizations owned by their members. Because credit unions are often restricted to serving a limited geographic area, that means their owners are also community members. Compare that to big commercial banks (or even smaller regional ones), which are owned by shareholders who may live far from your local branch. That means profits are also directed out of the local communities where bank branches operate. (Even the terminology associated with credit unions is a little more welcoming: While you open an account with a bank, you join a credit union. And membership comes with benefits, which we’ll explain soon.)

Banks and credit unions do share several basic functions. Both offer checking and savings accounts (and Direct Deposit), car loans, personal loans, mortgages, online access to your accounts, electronic bill payment, ATMs, and more. And your money is safe at both, because the federal government insures up to $250,000 of your deposits whether you have accounts at a credit union or bank.

Benefits of joining a credit union

While every credit union is different (just as every bank is different), in general, you can expect certain advantages from being a credit union member.

PRO: Cheaper loan rates and lower fees.

Because credit unions are non-profit, they often reward members by offering lower interest rates on loans than their commercial counterparts, which want to maximize profit. In the same way, many credit unions are less reliant on fees than commercial banks. That saves you money.

PRO: Better return on deposits.

Commercial banks are notoriously stingy when it comes to paying interest on deposit accounts. Credit unions tend to pay members back in the form of higher dividends on their interest-bearing checking and savings accounts.

PRO: More personal service.

Yes, you can get to know the tellers in the local branch of a commercial bank just as well as you can get to know them at a credit union. But good luck trying to speak to executives at a commercial bank, or seeking flexibility in loan requirements from a national institution. The community-focused nature of credit unions means they’re often more willing to work with you on a one-on-one basis than a bank.

PRO: Invest in your community.

When you join a credit union, your deposits become loans that support local development. In addition, credit unions are often involved in community-wide initiatives, such as financial education and charitable giving.

Drawbacks of credit unions compared to banks

Those are all fairly compelling reasons to join a credit union, but they’re not for everybody. Here are a few things that may be deal breakers for you.

Narrow membership requirements. To become a member of a particular credit union, you may need to live, work or worship in a particular area, or work in a certain occupation. (That’s because of charter restrictions imposed by regulatory agencies.) Commercial banks don’t have those restrictions.

You need branches in many different areas. The biggest commercial banks have branches across multiple states. Credit unions, with their limited geographic focus, simply don’t have that reach. (Some, like Adirondack Regional FCU, do allow you to use a nationwide network of ATMs at no fee.)

Limited products. The vast majority of customers aren’t looking for specialized products such as international accounts or multi-million-dollar business loans. If you are, though, credit unions may not be a good choice for you.

Technology gap. This is one area in which size has an advantage: Big commercial banks have often invested more heavily into the latest mobile technology and online tools than credit unions. That gap is narrowing, though. If there’s a feature you know you want, check to make sure it’s available.

Who might benefit from joining a credit union?

• People who put a premium on personal service
• Borrowers looking for lower loan rates
• Savers seeking better rates of return
• Anybody concerned about keeping money in their community

The bottom line

So: Are credit unions better than banks? A more appropriate question may be: Can credit unions meet more of my needs than a commercial institution? The answer may very well be yes. 

To learn more, watch a video and read real Adirondack Regional Federal Credit Union stories check out Bank or Credit Union?