Credit unions have a lot in common with banks, but there are significant differences, too. Unlike banks, credit unions are not-for-profit financial institutions that are owned by their members, which gives them some advantages over banks.

Even though they offer many of the same products and services as banks, credit unions have a few drawbacks. Here are the pros and cons of credit unions.

Pros of credit unions

  • Lower borrowing rates and higher deposit yields. Credit union profits go back to members, who are shareholders. This enables credit unions to charge lower interest rates on loans, including mortgages, and pay higher yields on savings products, such as share certificates (the credit union equivalent of certificates of deposit).
  • Variety of products. Large credit unions, such as Navy Federal Credit Union, have product lineups that rival many banks, including checking accounts, savings accounts, money market deposit accounts, share certificates, mortgages, auto loans, student loans and credit cards.
  • Insured deposits. If a credit union is a member of the National Credit Union Administration, members’ deposits are federally insured by the NCUA’s Share Insurance Fund for up to $250,000 per depositor.
  • More personal service. Credit unions are usually local or regional, which means service may be more personal.
  • Educational resources. Credit unions tend to stress financial literacy, so it’s common for them to offer seminars, articles, calculators and other tools to help their members sharpen their money skills.
  • Member-owned. Members of a credit union are both customers and stakeholders, meaning that every member has a say in voting on specific policies. This process ensures that the credit union’s decisions reflect the needs of its actual customers, rather than appeasing external stakeholders. 

Cons of credit unions

  • Membership required. Credit unions require their customers to be members. Account holders must meet eligibility requirements to use the products and services. Membership requirements are often lenient, though, and joining may be as easy as depositing $5 into a savings account or making a one-time donation to a sponsored organization or charity.
  • Not the best rates. You can probably find a higher annual percentage yield (APY) on a share certificate or savings account, or a lower rate on a loan, at online-only banks, which do not have the expense of maintaining branches.
  • Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.
  • May offer fewer products and services. Smaller credit unions may not offer as many loan and deposit products as big credit unions and banks. They also might not offer the latest technology, such as online banking, mobile banking and peer-to-peer payment platforms, such as Zelle.

Credit unions vs. banks: How they differ

Banks and credit unions offer many of the same products and services, but there are some noteworthy differences between them.

  • Banks are for-profit institutions that generally charge more fees and require higher minimum deposits and balances to open and maintain accounts. Banks pay taxes, whereas credit unions are not-for-profit institutions that don’t pay federal taxes.
  • Banks are accountable to shareholders who want to maximize profits. Credit unions return all profits to their members by paying higher APYs on deposits and charging lower interest rates on loans.
  • To do business with a credit union, you have to become a member, but banks are typically open to anyone. You can walk in to any bank and apply for a loan or open an account without having to meet membership requirements.
  • Online-only banks and traditional banks tend to have more digital tools to offer customers, such as mobile banking and online banking. Credit unions, especially smaller ones, may be less technologically advanced.

When deciding between a credit union and a bank, consider your priorities. Credit unions are rooted in serving their members and can provide a more personalized banking experience.

On the other hand, banks may offer a broader range of services, advanced digital platforms and extensive branch and ATM networks, making them best suited for those who value widespread access and a diverse range of financial products. 

If you’re a saver, make sure to compare top APYs at online banks and credit unions to find the best rates. 

Next steps to decide on a credit union

Choosing the right credit union for your financial needs can help ensure that you get the best benefits and convenience. With an abundant variety of credit unions to choose from, here are some steps to guide you in making an informed choice:

  1. Understand membership qualifications. Many credit unions have specific membership requirements to join, such as living in a specific area, working in a certain profession or having military ties. Not all credit unions have strict membership requirements, though.
  2. Check for nearby locations. If you value in-person accessibility, see where the credit union’s branches and ATMs are located.
  3. Consider the credit union’s digital tools. If online transactions are your go-to, research what technology the credit union offers and check its mobile app reviews.
  4. Look out for fees, such as monthly maintenance fees, ATM fees and overdraft penalties.
  5. Compare APYs at different credit unions if you’re seeking out a savings account that will pay you decently.
  6. Ensure the credit union is federally insured by the National Credit Union Administration (NCUA), which provides protection in case of a credit union’s failure. 

Bottom line

A credit union may be a good option if you’re looking for higher APYs, lower loan costs and a closer relationship with a financial institution. Consider the pros and cons of credit unions, do your homework and make the choice that’s best for you.

— Bankrate’s René Bennett contributed to an update of this story.