Advantages and disadvantages of credit unions
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Advantages and disadvantages of credit unions

January 10, 2023
Verified by Irene Scott
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Credit unions have much in common with banks, but there are also important differences. Unlike banks, credit unions are nonprofit, member-owned financial institutions, which gives them certain advantages over banks.

Although they offer many of the same products and services as banks, credit unions have some disadvantages. Here are the advantages and disadvantages of credit unions.

Advantages of credit unions

  • Lower lending rates and higher yields on deposits. Profits of credit unions are returned to members, who are shareholders. This allows credit unions to charge lower interest rates on loans, including mortgages, and to pay higher yields on savings products, such as share certificates (or CDs).
  • Lower fees. Federal credit unions are exempt from federal taxes. As a result, they tend to charge lower fees and have fewer charges on checking accounts and other products.
  • Product variety. Large credit unions have product lines that rival those of many banks, including checking accounts, savings accounts, money market deposit accounts, stock certificates, mortgages, auto loans, student loans, and credit cards.
  • Insured deposits. If a credit union is a member of the National Credit Union Administration, member deposits are federally insured by the NCUA's Share Insurance Fund up to $250,000 per depositor.
  • More personal service. Credit unions are generally local or regional, which means that service can be more personalized.
  • Educational resources. Credit unions tend to focus on financial education, so it is common for them to offer seminars, articles, calculators, and other tools to help members improve their financial skills.

Disadvantages of credit unions

  • Mandatory membership. Credit unions require their customers to be members. Account holders must meet eligibility criteria to use the products and services. However, membership requirements are often flexible, and a $5 deposit into a savings account may be sufficient to become a member.
  • Not the best rates. You can probably find a higher annual percentage yield (APY) on a stock certificate or savings account or a lower rate on a loan at online banks, which do not have the costs of maintaining branches.
  • Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which can be a problem unless the credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.
  • It may offer fewer products and services. Smaller credit unions may not offer as many loan and deposit products as larger credit unions and banks. They also may not offer the latest technologies, such as online banking, mobile banking, and peer-to-peer payment platforms, such as Zelle.

Banks and credit unions: what are the differences?

Banks and credit unions offer many of the same products and services, but there are some notable differences.

  • Banks are for-profit institutions that generally charge higher fees and require higher deposits and minimum balances to open and maintain accounts. Banks pay taxes, while credit unions are nonprofit institutions that do not pay federal taxes.
  • Banks are accountable to shareholders who want to maximize their profits. Credit unions return all profits to their members by paying higher interest rates on deposits and lower interest rates on loans.
  • To do business with a credit union you must become a member, whereas banks are generally open to everyone. You can join any bank and apply for a loan or open an account without having to meet any membership requirements.
  • Both traditional and online banks tend to offer more digital tools to their customers, such as mobile banking and online banking. Credit unions, especially smaller ones, may be less technologically advanced.

Choose between a credit union and a bank.

Do you prefer mobile banking to in-branch banking? Is growing your savings a top priority? If you are trying to decide whether to join a credit union or choose a bank, think about what you need and want most from a financial institution.

Once you have a clear idea of what you are looking for, Empire Finance Pro's lists of the best banks and credit unions can help you find the best options. Make a short list of your favorites, then compare the products and features that interest you most.

Once you've made your choice, it's time to open an account.

At a Glance.

A credit union may be a good option if you are looking for a higher average annual return, lower borrowing costs and a closer relationship with a financial institution. Consider the pros and cons of credit unions, do your research, and make the right choice for you.

Jessica Parker
Written by
Jessica Parker
Loans, Mortgage, Insurance
Jessica Parker is a senior content creator with years of copywriting experience. She joined Empire Finance Pro in 2018. She holds a Master’s degree in journalism from Northwestern University, and her work has appeared in a number of top-tier finance publications including Forbes, FinancialTimes and Bloomberg.