Pros and Cons of Banking With a Credit Union

Quick Answer

A credit union has many of the same benefits, services and products as a bank, and they often offer competitive rates on loans and other credit products. But you’ll need to be a member to open an account.

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Credit unions are member-owned financial institutions that offer many of the same services as banks but have other unique benefits, as well as a few drawbacks. Credit unions are not-for-profit institutions, which set them apart from banks and allow them to return profits to their members in the form of lower loan rates, higher savings rates and reduced fees.

Credit unions also require membership, which could entail belonging to a specific group, like a college or university, religious group or labor union, or living in a defined geographic location. Although membership requirements were more strict in the past, today, many credit unions have made it much easier for you to join. Let's take a closer look at the pros and cons of banking with a credit union and how to choose one that meets your needs.

Pros of Banking With a Credit Union

Despite the fact that large commercial banks generally provide a broader range of services, many credit unions still keep pace by offering checking and savings accounts, consumer loans, online and mobile banking, CDs, credit cards and more. Other benefits of banking with a credit union include:

Lower Interest Rates and Fees

Credit unions can offer members lower interest rates on personal loans, mortgages, car loans, home equity loans and other products. For instance, the national average rate for an unsecured 36-month fixed-rate loan at a credit union is 8.84%, while the national average rate for the same loan at a bank is 9.93%, according to the National Credit Union Administration (NCUA).

Credit union fees for monthly services may also be lower when compared with traditional banks. As an example, Members Cooperative Credit Union charges no fees or closing costs for a home equity loan; closing costs from a bank or other lender typically range from 2% to 5% of the loan amount on a home equity loan. That's why it pays to shop around and compare fees and other charges.

Higher Rates on Deposits

Because credit unions are member-owned and -run, they can often offer higher interest rates on deposit accounts than many banks. Credit unions are also exempt from federal taxes, allowing them to pass along those savings to members. And in many cases, they have greater flexibility to offer higher rates (and lower fees) because of their not-for-profit status.


With a bank, you're a customer. When you join a credit union, you are not only a member but an owner. For that reason, credit unions are often rated higher in overall customer satisfaction. Members are also shareholders who can vote on leadership decisions and policies.


As with banks insured by the Federal Deposit Insurance Corporation (FDIC), your money is insured up to a certain amount by the NCUA when you join a credit union. Both the NCUA and the FDIC provide insurance backed by the federal government. But even if your credit union isn't designated as a federal credit union, it may be regulated and chartered by a state agency. Either way, you can feel confident your money is safe.

Cons of Banking With a Credit Union

Along with the many benefits of banking with a credit union, there are also a few drawbacks.

Membership Restrictions

In the past, membership in a credit union was far stricter. Today, many of those restrictions have been lifted or at least eased a bit. However, there are still limitations on who can join. The "field of membership" may include membership through your employer; if you live, work, attend school or worship in a specific geographic location; or you're a member of an organization such as a labor union or homeowners association. It's best to shop around for a credit union that will open its doors to you based on its specific requirements.

Also keep in mind that you may pay a membership fee to join a credit union, usually between $5 and $25. Usually this minimal amount isn't a dealbreaker, but it's still good to know.

Limited Locations

In many towns, credit unions may only have one or two physical branches. Even in a larger city, branch offices can be many miles away from each other. Unlike some banks that have branches on nearly every corner, if you want face-to-face contact with your credit union banker, you might be in for a commute.

Fewer Services

Certain services found at banks are not always available through a local credit union. For instance, credit unions generally provide checking and savings accounts, credit cards (although you may not have the same rewards programs or special offers found through a bank), consumer loans and mortgages. You may also find some credit unions that offer certificates of deposit (CDs) and other similar products. Banks, on the other hand, may also offer investment accounts, retirement planning, merchant services and more, backed by the latest technology. Some smaller credit unions just don't have the capacity to offer everything a large bank can.

How to Choose a Credit Union

Because of the membership restrictions, you may have to shop around to find a credit union that you can qualify for and one that meets your needs. You'll also want to scope out savings and lending rates, what types of credit cards are offered, membership fees and customer service reviews.

It's possible that the most important factor in choosing a credit union is location. Look for a branch or ATM location near you. You may be able to use other financial institutions' ATMs, and your credit union may bear the cost of any fees, but not always.

To find a credit union in your state and town, you can visit the NCUA's website, which offers a list of credit unions by address, credit union name or charter number.

The Bottom Line

Because credit unions are member-owned, they can often focus their efforts on supporting the needs of their members and the community by offering superior customer service, lower rates and fees overall, and higher annual percentage yields (APYs). At the same time, many credit unions still have membership restrictions and may not always offer the diversity of products many large banks can offer. If you find a credit union you'd like to join, visit its website for membership information and eligibility requirements and check it out in person if you can.

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