Banks are usually for-profit businesses, while credit unions are nonprofits (owned by the credit union members).
Why does that matter? Put simply, it means that banks care about the bottom line, while credit unions can focus more on giving members a good experience. So generally speaking, credit unions offer better customer service and more community services (like financial literacy classes) than banks do.
For-profit and nonprofit status also affects who can become a member.
In most cases, banks will let just about anyone become a customer. Yes, they might check your ChexSystems report when you open a bank account, and you will need to live in one of the states they service. But a bank doesn’t care who you work for, what church you attend, or anything like that.
Credit unions, on the other hand, might care about just that. See, credit unions usually restrict membership to people who meet certain conditions, whether that’s living in a specific county or working in a certain field. They’re a bit more exclusive. That said, the exclusivity varies quite a lot from credit union to credit union.
For example, look at two popular national credit unions. Navy Federal Credit Union only serves members of the armed forces (and their families). If you haven’t served in the military, you’re out of luck. In contrast, anyone can become a member of Alliant Credit Union by asking Alliant to make a $5 donation to Foster Care to Success on their behalf. (Neither of these credit unions has business banking.)
Of course, the difference in exclusivity leads to differences in availability too.
Branches and ATMs aren’t the only things banks offer more of―they also usually offer more financial products and services.
Yes, you can get a basic checking account or savings account from either a bank or a credit union. But banks often offer way more than that:
- Money market savings accounts
- Investment accounts
- Credit cards
- Home loans
- Auto loans
- Personal loans
- Business loans
Credit unions can have some or all of those products, but they usually don’t have as much as banks do. In fact, almost 40% of credit unions don’t offer any credit cards.
For your personal banking needs, this might not matter much. But when it comes to business banking, you might have a hard time finding a credit union. Many credit unions don’t offer business bank accounts at all. Only one-third offer commercial loans.1 Even if you like the idea of using a credit union for your business banking, you might have trouble doing so.
While credit unions don’t have as many products as banks do, the products they have are quite competitive―at least when it comes to interest rates.
Credit unions have all-around better interest rates than banks do. As a rule, credit unions offer lower interest rates on loans and other financing, and they offer higher interest rates on deposit accounts.2 That means you’ll save money on borrowing and make more on saving.
Now, the difference in average rates between credit unions and banks is small (less than 1% on many products). Still, even small differences can really add up when it comes to business loan rates on a $100,000 loan. So if you want the best rates, you should go with a credit union.
But interest rates are just one factor. Given everything we’ve discussed, should you choose a credit union or a bank?