What a credit union is and how it differs from a bank

A credit union is a financial institution owned by its members rather than by shareholders or a corporation. When you put money into a credit union, you become a part-owner. The credit union uses member deposits to make loans to other members, and any profit gets returned to members as lower loan rates, higher savings rates, or reduced fees.

Banks operate differently. A bank is owned by shareholders who expect a return on their investment. Banks lend money and keep most of the profit. Credit unions exist to serve their members, not to maximize shareholder returns, which is why their rates and fees often differ from banks.

Both credit unions and banks are insured by the federal government. Credit unions are insured by the National Credit Union Administration (NCUA), which protects deposits up to $250,000 per account. Banks are insured by the Federal Deposit Insurance Corporation (FDIC), which offers the same protection level.

Key Takeaways

  • Credit unions are member-owned cooperatives that return profits to members through better rates and lower fees, while banks are shareholder-owned businesses.
  • You must meet a credit union's membership requirement to join, which varies by institution — some are based on where you work, where you live, or groups you belong to.
  • Credit unions offer the same basic services as banks: checking accounts, savings accounts, loans, and credit cards, though product names and features vary.
  • Both credit unions and banks have federal deposit insurance, so your money is protected up to $250,000 per account type at either institution.
  • Credit unions are regulated by the NCUA or state banking authorities, while banks are regulated by the FDIC, OCC, or state banking authorities depending on their charter type.

How membership requirements work at credit unions

Credit unions serve specific groups of people, called a field of membership. You can only join a credit union if you meet its membership requirement. These requirements vary widely. Some credit unions serve people who work for a particular employer, some serve people who live in a specific county or city, and some serve members of a particular profession, union, or organization.

For example, one credit union might serve only employees of a hospital system. Another might serve anyone who lives or works in a five-county region. A third might serve members of a teachers' union or employees of a government agency. A few large credit unions have broader fields of membership and accept almost anyone.

To join, you typically need to open a savings account with a small deposit — often $5 to $25. That deposit becomes your membership share. You keep the account open to maintain membership. Some credit unions charge an annual membership fee, though many do not.

The services credit unions offer

Credit unions provide the same core services as banks: checking accounts, savings accounts, money market accounts, certificates of deposit (CDs), personal loans, auto loans, home loans, and credit cards. The names and features of these products vary by credit union, but the basic function is the same.

Many credit unions offer online banking, mobile apps, and ATM networks. Some credit unions belong to shared branching networks, which means you can conduct transactions at other credit unions' branches even if you are not a member there. Others participate in ATM networks that let you withdraw cash without paying a fee at thousands of machines nationwide.

Credit unions often charge lower fees than banks for overdrafts, ATM use, and account maintenance. Loan rates are frequently lower too, though this varies by institution and by the type of loan. Not all credit unions offer all services — some smaller ones may not have credit cards or mortgages, for instance.

How credit unions are regulated and insured

Credit unions are regulated by either the National Credit Union Administration (NCUA), a federal agency, or by state banking authorities, depending on whether the credit union has a federal or state charter. The NCUA oversees federally chartered credit unions and insures deposits at both federal and most state-chartered credit unions through the National Credit Union Share Insurance Fund (NCUSIF).

Deposit insurance at a credit union works the same way as at a bank. Your deposits are protected up to $250,000 per account category. If you have a savings account, a checking account, and a money market account at the same credit union, each is insured separately up to $250,000. Joint accounts are insured separately from individual accounts.

Credit unions must meet capital requirements, undergo regular examinations, and follow lending standards set by regulators. These rules exist to keep credit unions stable and protect member deposits. If a credit union fails, the NCUA steps in to protect members' insured deposits.

Credit union versus bank: rates, fees, and service differences

Credit unions often offer higher interest rates on savings accounts and CDs because they return profits to members. They frequently charge lower rates on loans for the same reason. However, this is not always true — some credit unions charge rates comparable to banks, and some banks offer competitive rates. Rates depend on the institution, the current economic environment, and the type of product.

Fees tend to be lower at credit unions. Many credit unions do not charge monthly maintenance fees on checking or savings accounts, while most banks do. Overdraft fees, ATM fees, and wire transfer fees are often lower or waived at credit unions. Again, this varies — some credit unions charge fees similar to banks.

Service availability differs too. Large banks have thousands of branches and ATMs nationwide. Most credit unions have fewer physical locations, though shared branching and ATM networks expand access. If you travel frequently or need in-person service, a large bank's branch network may be more convenient. If you do most banking online, a credit union's smaller branch footprint may not matter.

The trade-offs of credit union membership

The main limitation of credit union membership is the membership requirement itself. You cannot join every credit union — you must meet the field of membership. This means your options are limited to credit unions that serve your employer, your location, your profession, or a group you belong to. If no credit union serves you, you cannot join one.

Credit unions also tend to have fewer products and services than large banks. A small credit union might not offer mortgages, investment accounts, or business banking. If you need specialized services, you may have to use a bank or a larger credit union.

Technology can be another trade-off. Smaller credit unions may have less advanced online banking platforms or mobile apps than large banks. Some credit unions do not offer certain conveniences like mobile check deposit or bill pay. Before joining, check whether the credit union's technology meets your needs.

How to find a credit union that serves you

The CO-OP Network and Alliant Credit Union both maintain searchable directories of credit unions by location, employer, and membership category. You can search these directories to see which credit unions you might join. The NCUA also publishes a list of federally chartered credit unions on its website.

Once you find a credit union that serves you, visit its website or call to confirm you meet the membership requirement. Some credit unions have straightforward requirements — living in a county, for example. Others require proof of employment or membership in an organization. Ask what documents you need to bring when you open an account.

If you work for a large employer, ask your human resources or payroll department whether the company has a credit union. Many employers sponsor or partner with credit unions for their employees. If you belong to a union, professional association, or community organization, check whether it has an affiliated credit union.

Frequently Asked Questions

Can I join a credit union if I do not work for the employer it serves?

No, you must meet the credit union's membership requirement. If a credit union serves only employees of a specific company, you cannot join unless you work there. However, some credit unions serve broader groups — anyone who lives in a certain area, for example — so you may find one that accepts you even if you do not work for a particular employer.

Is my money safer at a credit union or a bank?

Your deposits are equally protected at both. Credit unions are insured by the NCUA and banks by the FDIC, both federal agencies. Both insure deposits up to $250,000 per account category. The safety of your money depends on the institution's financial health, which regulators monitor at both credit unions and banks.

Do credit unions have ATMs?

Most credit unions have at least one ATM at their main office. Many belong to shared ATM networks that let you withdraw cash at thousands of machines without paying a fee. Some credit unions participate in the CO-OP Network or Alliant network, which offer nationwide ATM access. Check the specific credit union's website to see which networks it uses.

What happens if a credit union fails?

The NCUA takes over and protects your insured deposits up to $250,000 per account category. You will have access to your money, though it may take a few days. The NCUA may merge the credit union with another institution or return your funds directly. Your insured deposits are never lost.

Can I have accounts at both a credit union and a bank?

Yes. Many people maintain accounts at both institutions. You might use a credit union for savings and loans because of better rates, and a bank for checking because of more convenient branch locations. There is no rule against using both — your deposits at each are insured separately up to $250,000 per account category.