Is a credit union better than a bank?

A credit union is a not-for-profit owned by its members, and a bank is usually a for-profit company owned by shareholders. Both offer checking, savings and loans, both are federally insured up to $250,000, and credit unions often charge less on loans and fees, so compare actual offers before you choose.

The main difference is who owns it

Credit unions are not-for-profit cooperatives owned by members, with a volunteer board the members elect. Banks are usually for-profit companies run for their shareholders.

Your deposits are equally protected

Bank deposits are covered by the FDIC up to $250,000, and credit union deposits by the NCUA's Share Insurance Fund up to $250,000, per owner, per institution, per ownership category.

Credit unions often price loans lower

Because profits return to members, credit unions often offer lower loan rates, lower fees and higher savings rates. It varies a lot, so compare the actual APR and APY you are offered.

Banks can be easier to join and use

Anyone can open a bank account, and large banks and online banks may offer more ATMs, branches or app features. Small credit unions may have fewer locations.

How a credit union works

When you join a credit union, you open a savings account, often called a share account, and become a part owner. You get a vote on the board of directors, no matter how much money you have there. The credit union lends members' deposits to other members, and any profit goes back to members.

To join, you need to fit its field of membership. That might be an employer, a school, a military branch, a church or a geographic area. Many credit unions also let family members join, and some let anyone in who first joins a partner group. Most ask for a small opening deposit.

How a bank works

A bank is a business that takes deposits and makes loans to earn a profit for its owners. Anyone who meets its account rules can open an account. Banks range from small community banks to national banks with branches in many states, plus online banks with no branches at all.

Large banks tend to have more branches and ATMs, longer hours and more features in their apps. Online banks often pay higher savings rates because they have no branches to run. Fees vary widely, so read the fee schedule for the account you want.

Rates and fees

The NCUA says credit unions return their profits to members as reduced fees, higher savings rates and lower loan rates. That is a tendency, not a promise. An online bank may pay more on savings than a local credit union, and a bank may beat a credit union on a mortgage.

The fair test is the actual offer. For a loan, compare the APR, which includes the interest rate and some fees. For savings, compare the APY. For checking, look at the monthly fee, the minimum balance and the overdraft fee.

Safety and insurance

Banks are insured by the FDIC. Federal credit unions and the large majority of state-chartered credit unions are insured by the NCUA. Both cover $250,000 per owner, per institution, per ownership category, and both are backed by the full faith and credit of the United States.

A few state-chartered credit unions use private insurance instead. Look for the NCUA sign at the branch or on the website, or use the NCUA's credit union locator, before you deposit.

Using both

You don't have to choose just one. Many people keep checking at a bank with lots of ATMs, savings at an online bank with a high APY, and use a credit union for car loans. Insurance limits apply per institution, so spreading money across several also spreads the coverage.