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Banks vs. credit unions: How to decide

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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 vs. credit unions

Banks Credit unions
Who they serve Mostly customers in an area where the bank has a branch, unless it’s an online-only bank. It could be a certain region, employer or common group.
Savings and CD rates Typically lower than the national average Generally above the bank national average
Do they have branches? Yes, though some online banks have few or none. Yes, though some credit unions are online only.
Technology Generally, larger brick-and-mortar banks have advanced technology. Smaller banks might not. Some larger credit unions have advanced technology, but smaller credit unions might not.

Credit unions

Advantages of credit unions

  1. 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, director of new markets and industry ecosystems at data-analysis provider Curinos. Credit unions typically provide better savings and lending rates, van Faassen says.
  2. Federally insured credit unions are backed by the U.S. government. Your money is safe if a credit union fails. The National Credit Union Administration (NCUA) administers the National Credit Union Share Insurance Fund (NCUSIF). The NCUA Credit Union Locator can confirm whether a credit union is federally insured. 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.

Disadvantages of credit unions

  1. 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. Online banks may offer higher annual percentage yields (APYs). Online-only banks, also known as direct banks, tend to have more competitive savings and CD yields.
  3. 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.

Banks

Advantages of banks

  1. Location: 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. 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 local or regional and may provide more personalized service.
  3. Large banks might have better technology than smaller credit unions: Banks are a little ahead when it comes to technology, van Faassen says. Technology generally depends on the size of the bank or credit union.

Disadvantages of banks

  1. Deposit rates are usually very low: Brick-and-mortar banks don’t usually offer competitive yields on savings accounts, checking accounts and CDs.
  2. Having a branch nearby may not be necessary: Most transactions today can be processed online, through mobile banking or by writing a check. You might even be able to take care of some things, like getting a debit card mailed to you, over the phone or online.
  3. High balance requirements or maintenance fees: Some banks are known for charging fees, though there are usually ways to waive them.

Brick-and-mortar banks vs. online banks

Depending on their size, brick-and-mortar banks may operate thousands of branches, just one or some number in between. Online banks, on the other hand, usually don’t operate any branches, and opt 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.

Without the expense of branches to maintain, 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. Direct 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.

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. FDIC banks have standard insurance limits of $250,000 per depositor, per FDIC bank, per ownership category, while the NCUA standard share insurance amount is $250,000 per share owner, per NCUA insured credit union for each 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.

Bottom line

Many consumers use accounts at banks and credit unions to manage their finances. There are different types of banks and different types of credit unions, but shop around to choose the right one for you.

Consumers keep their checking account for an average of 17 years, according to a recent Bankrate survey. So it pays to think about your decision, since the bank or credit union you choose could be a part of your life for a long time to come.

Written by
Matthew Goldberg
Consumer banking reporter
Matthew Goldberg is a consumer banking reporter at Bankrate. Matthew has been in financial services for more than a decade, in banking and insurance.
Edited by
Wealth editor