Why choose a credit union over a traditional bank? Try lower loan rates, fewer fees, and better savings account dividends. Those are just a few of the benefits of credit union membership. That’s right, the lower fees and interest rates at credit unions are only the starting point for why credit unions are the smarter choice for your finances.

Ultimately, it comes down to the financial institution’s interests—and credit unions are committed to their members above all else. Read on to learn more, and you’ll likely be ready to start banking with your local credit union.

What are credit unions?

Credit unions are not-for-profit cooperatives that provide various financial services, from checking and savings accounts to mortgage and auto loans. Owned by and accountable to their members, credit unions have the freedom to offer lower rates on loans and higher yields on savings accounts than many traditional banks because they are not structured to profit from members’ financial transactions. 

To join a credit union, you’ll typically need to open a savings or checking account or pay an initial membership fee. Membership requirements are usually centered around an affiliation with a specific geographic location, profession, school, church, or other organization. However, a growing number of national and online-only credit unions cast a wider net, which makes choosing the right credit union easier than ever. 

Many people are surprised to learn that nearly everyone is eligible to join a credit union in their community.

Benefits of credit unions

Membership in a credit union offers several significant benefits that you won’t find through other financial institutions. Here are four main advantages of credit union membership:

1. Not-for-profit structure

The defining feature of any credit union is its not-for-profit structure. Unlike banks, credit unions are owned by members and not beholden to profit-driven shareholders. Because they focus on providing their members with the best rates and services possible, all other benefits of credit unions flow from this critical operating principle.

2. Better fees and rates

You’ll find lower fees and interest rates on credit union loans, credit cards, and their full range of financial services. That means you’ll pay less for things like account maintenance and overdrafts and get higher yields from services such as savings accounts and certificates of deposit (CDs). 

3. Personalized service

If you have an account at a credit union, you’re not merely a customer — you’re a member and part-owner. It’s in the credit union’s best interest to provide top-notch service to its members, and that’s exactly what credit unions are known to do. 

4. Community involvement and support

Community involvement is a pillar of the credit union movement. In addition to providing financial services for members, credit unions often offer money-management classes and partner with local chambers of commerce or other not-for-profits to provide financial counseling.

Credit unions vs. traditional banks

If you really want to answer the question, “Why choose a credit union over a traditional bank?” it’s helpful to compare a few key features directly.

Comparing fees and rates

Here’s a sample comparison of rates at credit unions and banks based on March 2024 data from the National Credit Union Administration:

5-year CD — $10,000

• Credit unions: 2.93% APY

• Banks: 2.05% APY

Money market account — $2,500

• Credit unions: 0.76% APY

• Banks: 0.57% APY

Unsecured fixed-rate loan, 36 months

• Credit unions: 10.83% APY

• Banks: 11.65% APY

Credit card, classic

• Credit unions: 12.86% APR

• Banks: 15.29% APR

30-year fixed-rate mortgage

• Credit unions: 6.90% APR

• Banks: 7.02% APR

New car loan, 60 months

• Credit unions: 6.40% APR

• Banks: 7.21% APR

Likewise, Consumer Financial Protection Bureau data show that credit union overdraft and insufficient funds fees tend to be 13% to 19% lower than fees levied by large banks.

Weighing accessibility and convenience

Big national banks are known for providing accessible ATMs nationwide, but that doesn't mean credit unions can't compete! Locally, credit unions often open branches in many neighborhoods within a geographic area. Nationally, most credit unions are part of larger networks like the Co-op Shared Branch network, allowing members to make deposits and withdrawals nationwide without paying fees.

Personalizing customer service

As noted above, credit unions consistently outshine banks in customer service. Nowadays, with many national or online-only banks, you may have to push through layers of chatbots and voice assistants before you get to an actual customer service representative. At credit unions, a rep is always ready to help at a local branch or over the phone.

Exploring products and services

Overall, banks and credit unions offer similar sets of financial services. Whether you need to open a personal or business account, apply for a mortgage, or explore retirement savings options, you can get the job done at most banks and credit unions. 

However, because banks are for-profit institutions, they often offer bells and whistles, such as polished mobile apps or online banking services. Many credit unions also provide these services, but the features may not be as robust as what you’ll find at banks. Most of the time, though, it’s worth the tradeoff in terms of lower fees and interest rates at credit unions.

Misconceptions about credit unions

In a landscape dominated by big banks, it’s possible to form misconceptions about community credit unions. However, size doesn’t determine which institutions have the most to offer. In fact, credit unions' smaller size and member focus enable them to provide more personalized service.

Many consumers also pause when they hear that the Federal Deposit Insurance Corporation (FDIC) doesn't insure credit unions. Rest assured, though, your money is just as safe at a credit union as at an FDIC-insured bank. Credit unions are backed by a different agency — the National Credit Union Administration (NCUA) — which insures deposits of up to $250,000 through the National Credit Union Share Insurance Fund (NCUSIF).

Finally, while it’s true that credit unions often have membership requirements, these are typically more flexible than people think. For example, current and former professionals may qualify for membership within a profession-based credit union, as well as their parents, spouses, children, grandparents, siblings, and household members. Also, many people are eligible for credit union membership simply by virtue of the city, county, or state they live in.

How to choose a credit union

When choosing the right credit union, there are a few essential considerations to explore:

• Membership eligibility. As noted, many credit unions have membership specifications based on organizational involvement. You or a family member may need to be connected to the group the credit union serves, so be sure to check this before you explore a credit union’s services any further.

• Branch and ATM access. Especially when opening a checking account, you need to know how easily you can make deposits and withdrawals. Is there a local branch near you? How many ATMs are in your area? Is the credit union part of a national shared branching network like CO-OP?

• Online banking and mobile apps. Many credit unions offer robust online banking services with features such as mobile deposits, online bill payments, and more. If these services matter to you, ask about them when comparing your options.

As with any financial service, it's a good idea to research and compare a few options before joining a credit union. Determine the non-negotiable features you'd like to see ahead of time — several credit unions in your area likely fit the bill.

Further resources on why credit unions are the smarter choice

Interested in learning more about choosing the right credit union? Here are a few resources to help you dig deeper:

• Additional research never hurts. Develop a more robust understanding of the difference between credit unions and banks.

• Trust your assets are covered. Learn more about how the NCUA insures the funds you deposit in a credit union.

• Be prepared to act. Learn how to open an account at your credit union of choice.

Choose the right credit union for you

Why choose a credit union over a traditional bank? The better question may be, why not?! As you can see, credit union membership offers plenty of perks, and the lower fees and interest rates at credit unions are only the tip of the iceberg. 

With more personalized service, a member-first focus, and a commitment to your local community, you can find the right credit union for your financial needs. Find a credit union near you today!

Did you know?

Credit unions often don't have minimum balance requirements, and many make it easy to avoid overdraft charges. Unlike the practices of many for-profit banks, you usually don't have to worry about paying a fee at a credit union if your balance doesn't stay above a specific threshold.