Pros and Cons of Banks vs. Credit Unions

What to Know Before Taking the Leap Forward With Your Business Banking

Bearded and bespectacled customer talking to a banker at the bank

miodrag ignjatovic / Getty Images

Business owners have several options for where they store their cash, develop credit, and take out business loans. If you're looking for a new banking solution for your business or personal finances, consider the pros and cons of banks and credits unions carefully before making a decision about what type of institution makes the most sense for you.

Key Takeaways

  • Banks and credit unions are both financial institutions that accept deposits and make loans
  • Credit unions are not-for-profit and are member-owned versus for-profit banks that are owned by shareholders and investors.
  • Credit unions typically offer more favorable rates on both deposits and loans compared to banks
  • Credit unions may offer more flexibility but may lag in product offerings, technology and access to branches

What Is a Credit Union?

A credit union is a not-for-profit financial institution owned by members with common economic interests. For example, teachers may decide to form a credit union full of teacher-friendly investments, or people from a common location may decide to form their own credit union to borrow and lend money locally. Credit unions are set up as nonprofit entities, meant to provide affordable financial services to their members.

What's the Difference Between Banks and Credit Unions?

Credit unions and banks may seem similar because they both accept deposits and lend money, but they are different in many ways.

Banks  Credit Unions 
For-profit financial institutions owned by shareholders and investors Not-for-profit financial institutions owned by members
Pay less interest on deposits Offer better interest rates on deposits
Charge higher interest on loans  May offer more favorable loan rates 
May charge higher transaction fees  Lower transaction fees and limits
May not be as flexible May offer more flexibility
More technology savvy May not have very advanced technology
More financial product offerings Fewer financial product offerings
More physical locations Fewer physical locations

Interest Rates on Deposit Accounts

If you want a savings account that accrues the highest possible interest, depositing your company's funds in a credit union may be a better option than a bank. Credit unions often pay higher interest rates on all deposit accounts including savings accounts, checking accounts and money market accounts, and depositors generally earn a greater amount on their deposits from local community banks and credit unions.

Typically, traditional banks don't offer interest rates that are better than credit unions, and in most cases, only online banks have rates that are comparable to those offered by credit unions.

Loan Rates

As a business owner, it's crucial to know the variety of ways you can acquire loans to grow your business, as well as the amount you're likely to be charged in interest over the lifetime of those loans. Identify lenders that charge the lowest interest rates on loans and lines of credit.


Mortgages, personal loans, business credit cards, business loans, and business lines of credit given by credit unions are typically cheaper compared to traditional banks.

Traditional banks often charge rates that are a point or two higher compared to what's charged by credit unions. Thus, getting a mortgage or business loan from a credit union is generally the cheaper route.

Transaction Fees

This is another significant difference between credit unions and banks. Credit unions, because they are community oriented, tend to charge a smaller amount of fees on different transactions as compared to banks. Many credit unions do not have a minimum required balance on checking accounts. Moreover, they do not charge a monthly account servicing charge. This can save your business hundreds of dollars per year.

Additionally, most transactions such as checks, withdrawals, and electronic transactions are also free of charge.


Many people who have dealt with both banks and credit unions might tell you that credit unions are easier to deal with compared to traditional banks.


Many times, credit unions will readily accept people with a poor credit history, as they may have less stringent regulations as compared to traditional banks.

On the other hand, banks have many branches and have a large number of customers. The probability of a bank declining your loan application due to a low credit rating is very high. After all, losing one customer is not an issue to them. If you're a member of a credit union, your application may go through even if you do not meet all the requirements.

Technological Advancement

Consumers may feel that technology at credit unions may be as advanced as those employed big banks. Since credit unions are smaller in size and often have fewer members compared to banks, they can lack web-based features such as online check deposit or budget notifications. Credit unions that have an online presence may only allow customers to do simple transactions, such as transferring funds and checking recent account activity, but little else.


Traditional banks may have a stronger online presence and functionality compared to credit unions.

With traditional banks, the online interfaces can allow you to see recent activity, transfer funds to another account, apply for credit cards, apply for loans, and even pay bills.

Product Offerings

Credit unions offer fewer financial products in comparison to banks. Traditional banks have a variety of checking accounts, distinct types of loans, different credit cards, and even a wide range of mortgage loans to choose from.


Customers get more freedom of choice with traditional banks since they offer a wide range of products that suit personal and business needs.

Credit union members are limited to only specific financial products that the credit union specializes in. This may be a big limitation for a large business but perhaps not much of an issue with small to mid-size businesses.

Access to Physical Locations

Unlike banks that have physical branches nation wide, credit unions only operate from a few locations. This means that if a member relocates to a different city, it could prove more difficult to make transactions. Furthermore, the limited online presence of most credit unions can require members to be near a physical branch to perform many common transactions. This is changing as more credit unions are adapting to the online needs of their clientele.

The Bottom Line

When choosing where to bank your business, take the time to review the pros and cons of each institution at your disposal, and decide which will best serve the needs of your business. There are no rules against using both.

Frequently Asked Questions (FAQs)

Credit union versus bank, which is better when paying off loans?

Credit unions, typically, offer better interest rates on loans compared to banks. Lower interest rates help reduce the overall cost of borrowing, which could be a big help when paying off your loan.

How are credit unions similar to banks?

Credit unions and banks may seem similar because they are both types of financial institutions that accept deposits and lend money. However, there are many ways in which they differ. Banks are ,typically, for-profit and owned by investors or shareholders. Credit unions are not-for-profit, member-owned entities that often provide more favorable rates on both loans and deposits when compared to banks.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. MyCreditUnion.Gov. "What Is a Credit Union?"

  2. National Credit Union Administration. "Credit Union and Bank Rates 2022 Q1."

  3. Navy Federal Credit Union. "EveryDay Checking For Everyone."

  4. DC Credit Union. "Credit Builder Loans."

  5. Mobiquity. "The Digital Opportunity for Credit Unions."

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