Banks vs. credit unions: The pros, cons of each and how to choose which is right for you

Deciding where to store your money, open a credit card or apply for a loan can be overwhelming. To make it even more difficult, your choice of banking institution — whether it be a bank or a credit union — plays a big part in the type of experience you’ll have.

Below, CNBC Select digs deeper into the difference between banks and credit unions, outlines the pros and cons of each and helps you decide which to choose.

Banks and credit unions are both financial institutions that offer products like checking accounts, savings accounts, mortgages, auto loans and personal loans. Both institutions also offer advisory services and online banking, and both are safe: Your funds in a bank or a credit union are insured by either the FDIC or NCUA, respectively, for up to $250,000 per account owner. Banks and credit unions differ, however, in how they operate.

Banks are generally for-profit institutions while credit unions are not-for-profit institutions serving a certain community, the latter meaning their profits are distributed to their members. For this reason, credit unions will sometimes offer better rates and fees than a large, national bank — but they have more limited access.

Since credit unions are owned by their members, you’ll need to meet eligibility requirements (live in a certain state, work with a particular company, have an affiliation with certain groups, etc.) in order to join and open an account. Many of the best credit unions, however, open up eligibility to anyone who donates a small fee to a participating organization.

For example, Alliant Credit Union’s membership requires just a one-time $5 donation to Alliant’s partner charity, Foster Care to Success — which Alliant will actually cover on your behalf.

PenFed Credit Union is another one available to anyone, you just have to open a PenFed savings account with a $5 initial deposit.

• Diverse financial products and services: The big banks typically offer a wide variety of financial products and services.
• Extensive physical branches and ATM networks: Banks tend to have more branches and ATMs nationwide, which can make it easier to bank in person or access in-network ATMs on the go.
• More digital banking options: Banks often provide more advanced digital banking options when it comes to features like mobile apps.

Cons of banks

• Lower savings rates: The big, brick-and-mortar banks are known for having low rates on their savings products, though online-only banks offer some of the highest savings rates on the market.
• Higher loan rates: Banks will sometimes charge a higher interest rate on certain loans than credit unions do, which can be compared in the latest NCUA analysis.

Pros of credit unions

• Lower fees: Credit union products may come at a lower price than what banks offer and some credit unions even waive certain fees on bank accounts and credit cards.
• Competitive rates on deposits: Credit unions sometimes offer more competitive interest rates than the big banks.
• Personalized customer service: Credit unions are known for providing more personalized and responsive customer service due to their membership-based formation.

Cons of credit unions

• Membership requirements: Credit unions require you to become a member in order to open an account, and the eligibility often doesn’t apply to everyone.
• Limited access: Credit unions usually serve a specific community or region, resulting in fewer branches and ATM access.
• Fewer product options: While credit unions offer many of the same products as banks, you may not have as many options for each as you would with a bank.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every banking article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of banking products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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