Banks aren’t your only option when you need checking accounts, loans and other banking services. Credit unions offer similar services and do so with similar safeguards—should a credit union fail, the National Credit Union Administration (NCUA) can provide up to $250,000 per account in coverage, matching the protections provided for bank accounts by the Federal Deposit Insurance Corp (FDIC).
But there are some differences between credit unions and banks…and which is better for you depends on your priorities. “Both big banks and credit unions have places where they shine,” says Matt Schulz, chief consumer finance analyst at LendingTree. Bottom Line Personal asked Schulz to explain the differences between credit unions and banks.
| Pros and Cons of Credit Unions |
| Pros |
| Higher interest rates on CDs, savings accounts, etc. than banks |
| No account-maintenance fees |
| Loan and credit card rates are capped at 18% |
| Personalized customer service |
| Cons |
| Requirements to become a member |
| Hefty overdraft fees |
| Rates on payday alternative loans are as much as 28% |
| Limited number of branches and ATMs |
Are Credit Unions Better than Banks?
Four reasons to choose a credit union…
Banks are for-profit businesses…credit unions are not-for-profits owned by their customers
For-profit businesses can, of course, serve their customers well—but credit unions’ not-for-profit structure does have advantages…
Credit unions often offer more attractive rates than banks, because they don’t need to earn profits for shareholders—more about those rates below.
Credit unions tend to put greater emphasis on providing personalized, customer-first service. “In a day and age when service often does not always come first, working with an organization where personal service is a priority can be refreshing,” says Schulz.
Credit unions typically pay higher interest rates than banks
Lists of the best certificate-of-deposit (CD) rates usually are dominated by credit unions—the six top spots on DepositAccounts.com’s list of highest-yielding three-month CDs recently all were credit union offerings. Also: Credit unions typically fare better than bricks-and-mortar banks on lists of the highest-yielding savings accounts, though some online-only bank accounts do excel in this category as well. Example: The 4.75% annual percentage yield (APY) offered by Fitness Bank was one of the best available at the beginning of 2026. Checking accounts at credit unions typically don’t impose monthly maintenance fees, though detractors note that some credit unions do charge hefty overdraft fees when customers allow their checking account balances to drop below $0.
Loan rates and credit card rates are capped at most large credit unions
Unlike banks, federal credit unions are not permitted to charge interest rates above 18% on most forms of loans, including credit card debt. “That is significantly less than even the national average on a bank credit card,” notes Schulz. Credit unions’ current 18% cap is actually higher than normal for these institutions—often federal credit union rate caps are set at just 15%.
But federal credit unions currently are allowed to charge up to 28% on “payday alternative loans”—small low-interest loans of $200 to $2,000 with repayment terms of one to 12 months. The rate caps mentioned here don’t apply to credit unions that operate under state charters rather than federal charters. Helpful: If the word “Federal” is in a credit union’s name, it’s operating under a federal charter.
Consumers should not assume that every credit union will offer lower rates than banks when they borrow, warns Schulz—but as a rule of thumb, this is likely, which makes credit unions a good place to start shopping around when in need of a loan.
Credit unions keep money within a community
Big banks typically are sprawling nationwide financial institutions, but credit unions often operate within a specific geographic region. That means dollars deposited in a credit union are likely to be lent to borrowers in that same area, fostering local economic growth. “The community emphasis for some people could be a determining factor,” says Schulz.
When Banks Are Better than Credit Unions
Three reasons to choose a bank…
Banks are open to essentially anyone who wants to be a customer
That is not the case with many credit unions. Only members of the group or groups specifically cited in a credit union’s charter are eligible to become members. Examples: Some credit unions are available only to people who live in a particular region or to those who work for a specific employer. There are credit unions that have extremely broad eligibility criteria—sometimes anyone who is willing to make a very small donation to a particular charity can join, for example—but a desire to avoid potential eligibility hassles is a valid reason for someone to opt for a bank over a credit union. Banks have no membership restrictions.
Big bank chains have many more branches and ATMs than credit unions
A big bank is your best bet if you travel frequently and/or divide your time between homes in different parts of the country and you want to work with a financial institution that has bricks-and-mortar locations and ATMs wherever you go. Many credit unions do belong to networks that provide members with no-fee use of other credit unions’ ATMs, which can somewhat minimize the disadvantage of not having many branches.
Big bank chains tend to have more advanced banking apps than credit unions
If you do a lot of your banking online, a big bank—or an online-only bank—might have more versatile and user-friendly digital tools than those offered by the typical credit union.
