Credit union vs bank: what actually differs

A bank is a company owned by shareholders. It may be publicly traded, privately held, or owned by a holding company, and it aims to earn a return for its owners. A credit union is a not-for-profit financial cooperative owned by its members — the people who keep money there. Each member generally has one vote in board elections regardless of balance, and boards are typically made up of volunteer members.

Because credit unions are not-for-profit cooperatives, federally chartered credit unions are exempt from federal income tax, and most state-chartered ones are too. Earnings are retained to build capital or returned to members through rates, fees or dividends. Banks pay corporate income taxes.

Both types are regulated and examined. Banks are supervised by the OCC, the Federal Reserve, the FDIC and/or state regulators depending on their charter; federal credit unions are supervised by the NCUA, and state-chartered ones by their state regulator together with the NCUA if federally insured.

Anyone can open an account at most banks. Credit unions serve a defined field of membership — a common bond such as an employer, an occupation, a religious or community organization, a military affiliation, or living, working or worshipping in a specific geographic area. In practice many credit unions have broad eligibility, and some allow anyone to join by first joining a partner association or charity. Family members of existing members are often eligible too.

Bank deposits are insured by the FDIC and federally insured credit union shares by the NCUA, both up to $250,000 per depositor, per institution, per ownership category, and both backed by the full faith and credit of the United States. For an insured depositor there is no practical difference in protection. The exception is the small number of state-chartered credit unions that use private insurance and must disclose that they are not federally insured. See NCUA share insurance and the FDIC insurance limit.

Credit unions are often described as offering higher savings rates, lower loan rates and lower fees, and on average that has tended to be true for some products, such as auto loans and basic savings accounts. But averages hide wide variation:

• Online banks frequently pay higher rates on savings and CDs than both branch-based banks and credit unions.
• Some credit unions charge overdraft and other fees similar to banks.
• Large banks often have broader ATM networks, more advanced apps and wider product ranges, including business and wealth services.

The only reliable way to compare is to look at the current rate sheet and fee schedule of the specific institutions you are considering.

There are thousands of each in the U.S. Most credit unions are small, community-based institutions; the largest serve millions of members nationally. Many credit unions participate in shared branching and surcharge-free ATM networks, which can give members access to thousands of locations beyond their own branches. If in-person service in a particular city matters, check the branch list for the specific institution; our state and city directories show which banks and credit unions have offices where.

1. Find credit unions that serve your area, employer or affiliation. The NCUA's credit union locator and our state pages can help.
2. Check the eligibility rules on the credit union's website.
3. Open a membership savings (share) account, which usually requires a small minimum deposit, often around $5 to $25. That deposit represents your ownership share.
4. Provide identification and your Social Security number, as you would at a bank.

Membership usually continues even if you later leave the employer or area that qualified you, but check the credit union's policy.

Both banks and credit unions can fail, and both report quarterly financial data. TellerScore shows comparable publicly reported figures for each — for example, the Tier 1 leverage ratio for banks and the net worth ratio for credit unions — and compares each institution with peers of its own type and size. You can compare any two institutions side by side on our compare page.