No matter who you are, you probably rely on a checking account to keep track of your liquid assets, and most people have a savings account whether they use it or not. Your checking and savings account are probably both provided by a bank of some kind because, until recently that was the only option most people knew existed. However, since the start of the recession there has been a dramatic increase in people choosing to invest their money in credit unions rather than banks. Many people, myself included, have experienced frustration with their bank and have gazed with interest at their local credit unions.

The Basics

The fundamental difference between a bank and a credit union is the relationship each holds with its patrons. Banks are first and foremost profit generating businesses run by board members on the behalf of stockholders. Regardless of how you feel, it is the objective of a bank to offer the fewest services it can in exchange for the highest fees possible while still remaining competitive. While this may sound harsh, it is the nature of business; and banks are a business. This can work to your advantage if, say, a rival bank begins offering additional services, as your bank may choose to do the same or offer alternatives. However, you don’t need an online finance degree to figure out that this can make things more difficult for you as a bank may decide that the services it offered when you opened your account are no longer cost-effective and discontinue them without a moment’s thought to your needs.

Credit unions differ from banks in that they are typically smaller, serving individual areas, towns or groups of people. They are also nonprofit organizations, which means they are tax exempt, and any capital they generate is used to cover overhead costs or in some way benefit its membership. While people enrolled in a bank are classified as “customers,” people involved with a credit union are considered “members” and command a greater voice within the institution. The members also vote on their board of directors, whose primary responsibility is not to create profit for stockholders, but rather to represent the members’ interests. In most cases, the more members a credit union has the more benefits each member receives.

Which is Better?

Choosing whether to enroll in a bank or credit union requires you to consider a number of key factors, and highest on this list is what you really want out of your checking account. Most people, especially young adults, really just want a checking account for the purpose of storing their cash and could care less about who does it: they put money in and take it out. You can easily accomplish a relationship like this with either type of institution, but other factors may make one more attractive than the other.

The decision to opt for a credit union also depends heavily on those that are available in your area. Unlike national banks, which are omnipresent and their many branches as consistent as individual state law permits, credit unions vary widely in the services they provide and what they expect out of members. National credit unions are an option, but they offer increased availability and benefits at the expense of individual influence and personalized care.

There is one area in which credit unions excel: savings accounts and fees. The savings accounts offered by credit unions almost universally offer higher interest rates than banks, and their fees are generally nonexistent compared with those of a bank. In order to remain competitive, many banks are introducing no-fee accounts in which their customers enjoy free use of a checking and savings account at the cost of reduced services or increased restrictions. In either case, benefits come with a price as credit unions generally cannot provide all of the higher-end services that a bank may charge for, and a bank cannot provide all the free services offered by a credit union.

I personally keep my checking account with a bank, not because I prefer its services, but because it’s nearest branch located only a few minutes away from my home. The nearest credit union, one in which I would actually become a member, is 40 minutes away by car. Whether I’m getting the services I want or not, driving for over an hour to take advantage of them makes them a bit inconvenient, so I struck a balance between what I wanted and what I could manage.

It’s How You Play the Game

The bottom line is this: shop around. Look at all the options that are available to you in your area, read the terms, conditions and benefits, and then make a decision. Both banks and credit unions will put subtle pressure on you to open an account while they explain their services and fees, but don’t feel as though you have to make the decision immediately just because they’ve handed you a pen. It’s your money and they want it: make them work for your hard-earned cash. Choosing a bank or credit union is the same as any other deal: make sure you’re getting what you need at the best price possible.


“Kate Manning is a business major who has worked under others and as a self-employed entrepreneur. She currently owns and manages her own business in Washington state.”

Kate is not endorsed or affiliated with LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Creative Commons License photo credit: Sweet One


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Comments | 1 Response

  1. MoneyIsTheRoot says

    Its funny I came across this post via another blog, as I just wrote an article on the very same subject today and posted to my blog. My take is that credit unions tend to offer a lot more advantages over a bank. I guess the one exception I can find is if you live in an area that simply doesnt have any locations…as you stated. Id say there are very few areas that dont have these options, but you never know.

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