Both credit unions and banks insure single-ownership accounts up to $250,000. However, members own credit unions, while investors own banks. This structure makes credit unions risk-averse while banks constantly work to earn solid returns for their investors.
When deciding where to hold your money, many ask: Are credit unions safer than banks? On the surface, credit unions and banks similarly protect your money through insurance. They both insure the same amount of funds held in your accounts. However, due to their financial decision-making, most people regard credit unions as safer. Here’s what you need to know before deciding where to open an account.
Are Credit Unions Safer Than Banks?
Credit unions are insured by NCUA, which means your funds held there are just as safe as those held in a bank, which the FDIC insures. NCUA stands for the National Credit Union Administration, a government agency that regulates and oversees credit unions. A single-ownership account is insured up to $250,000 through NCUA.
The perception that credit unions are safer is due to their decision-making process and risk-averseness. Credit unions tend to use more conservative investment principles, making your money held there safer. This risk aversion stems from the fact that credit unions are nonprofits, and those account holders are the owners. In contrast, banks are for-profit entities with investors for owners.
Credit Unions vs. Banks: Overview
View a side-by-side comparison of banks vs. credit union locations.
| Bank | Credit Union | |
| Ownership | Shareholders | Members or account holders |
| Membership | No membership requirements | Must be a member to open an account |
| Interest rates on savings accounts | Generally less than credit unions | Often more than banks |
| Interest rates on loans | Usually higher than credit unions | Generally lower than banks |
| Fees | Higher than credit unions | Lower than banks |
| Account minimum balance requirements | Often higher than credit unions | Often lower than banks |
| Branch availability | More branches available | Often clustered in one community but fewer available compared to banks |
| ATM network | Generally large offering many options | Smaller than banks in most cases |
| Insurance on funds held in an account | $250,000 through the Federal Deposit Insurance Corp. | $250,000 through the National Credit Union Administration |
Credit Union Pros and Cons
Credit unions offer many advantages over banks. But they also have some drawbacks you’ll want to know before deciding where to hold your funds.
Pros
- Better interest rates for savings accounts: Most credit unions can offer better interest rates on savings than banks.
- Better customer service: As an owner, the credit union values its relationship with you more seriously
- Lower loan interest rates: Depending on your borrower profile, credit unions might offer better loan terms
- Less fees: Credit unions often charge lower fees than banks
Cons
- Membership Required: Credit union membership is often not open to the public. Generally, credit unions are reserved for people who work for certain employers, live in specific areas, or are part of a select group, such as military members and their families.
- Limited branch availability: Credit unions are typically based in small service areas, meaning branch availability is limited when you travel, unlike regional and national banks with branches nationwide.
- Few ATM locations: Just like there are few branches, there are few ATMs for your credit union. However, your credit union will most likely be part of an ATM network, offering you free access to those ATMs or access for which your credit union reimburses the fees.
Bank Pros and Cons
Banks excel at leading technology, and you’ve likely seen locations on every corner throughout your hometown and even when you travel. While banks boast many great advantages, you should also be aware of the drawbacks.
Pros
- Better technology: With more resources, banks generally have better technology than credit unions.
- More branch locations: Most banks operate regionally or nationwide. That means you can stop in even when you’re traveling, which can be more convenient when trying to check items off your to-do list.
- Many ATMs: Banks generally offer more ATMs than credit unions.
- Greater accessibility to financial services: Banks generally offer easier access to funds and financial services. You can access your funds and related services more quickly on your phone through the intuitive app or by stopping in at your local branch location to chat with a teller.
Cons
- Lower interest earnings on savings: Banks are less competitive with their interest rates on savings accounts and CDs.
- Less favorable loan terms: Loans from banks typically have higher interest rates than those from credit unions.
- Lower Satisfaction: Bank customers generally report lower satisfaction than credit union owners.
Banks vs. Credit Unions: Which Is Right for You?
Finding the right solution for where to house your funds can feel challenging. Use this guide to inform your decisions between a credit union vs. bank.
When to Consider Credit Unions
- When seeking better interest rates on loans, such as an auto loan or mortgage
- When you have large sums of money and want to earn higher interest rates
- When you frequently visit branches for assistance and want to build rapport with them
- When you want to avoid high fees and minimum account balance requirements
When to Consider A Bank
- When you travel frequently and need access to your bank account while on the go
- When you’re busy and just want to do everything online or through an app
- When you don’t qualify for a credit union in your community
Frequently Asked Questions
How safe are credit unions amid the latest banking turmoil?
Credit unions have different risk exposures than the banks currently undergoing turmoil, which might make them a less risky option.
Is it better to bank at a credit union or a bank?
Credit unions have higher interest rates on the funds you hold in your savings and generally come with fewer fees. If you plan to take out a loan soon, you might also get better interest rates with a credit union.
Is your money safe in a credit union during a depression?
Regardless of the market conditions, the funds you hold in a credit union are insured up to $250,000.
Are credit unions safer than banks in a collapse?
Most credit unions are safer than banks in a financial collapse because they take fewer risks and often serve more small businesses and individuals than investors.
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About Rebekah Brately
Rebekah Brately is an investment writer passionate about helping people learn more about how to grow their wealth. She has more than 12 years of writing experience, focused on technology, travel, family and finance. Her work has been published in Benzinga, Hearst Bay Area, FreightWaves and Dallas Observer publications.