Benefits of Credit Unions vs Banks

Katie DuncanMarch 16, 2022

Reviewed By: Amplify

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Should you put your money in the hands of a credit union or a bank?

It’s a question that’s been asked since 1909, when St. Mary’s Cooperative Credit Association, the first U.S. credit union, opened in Manchester, New Hampshire. While banks and credit unions have a lot in common, there are some key differences that every future account holder should be aware of. Here’s what you need to know about banking with a traditional bank versus a credit union.

What is a bank?

At their core, banks are financial institutions that are licensed and regulated by the government to receive deposits and lend money. Banks provide their customers with a safe place to keep their money and offer a variety of accounts such as:

  • Savings accounts
  • Checking accounts
  • Certificates of deposit (CDs)

The money that you keep in these accounts is typically federally insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 for individual depositors and $500,000 for jointly held deposits.

Banks also extend credit to their customers through loans like personal loans, home mortgages, and lines of credit. Banks are for-profit businesses and earn money for their owners (typically shareholders) by charging interest on these loan products.

Though the focus of this article is retail banks (which serve the general public), there are several different types of banks. Some of these include investment and corporate banks, which specialize in serving large corporate customers.

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What is a credit union?

A credit union is a type of financial institution that offers many of the same products and services as a bank. You can open a checking account, apply for a loan, and take advantage of other financial services at a credit union the exact same way that you would do at a traditional bank.

Like banks, the money you put into an account at a credit union is federally insured against bank failure or theft. However, instead of being insured by the FDIC, your deposits at a credit union are federally insured by the National Credit Union Administration (NCUA).

There is one important distinction between banks and credit unions. Instead of being a for-profit organization, credit unions are not-for-profit.

Credit unions are member-owned cooperatives. That means any profits realized by credit unions are returned to their members— anyone who has an account with the credit union— in the form of lower interest rates on loans and better dividend rates on deposits.

Who can join a credit union?

Anyone can join a credit union as long as you are within that particular union’s “field of membership”. A field of membership is determined by each credit union’s charter.

The Federal Credit Union Act recognizes three versions of federal credit union charters:

  • Single common bond charters: These credit unions serve people belonging to a particular corporation, trade, industry, profession, or association. For instance, some credit unions serve members of the military and their families. Others may serve employees and students of a particular university.
  • Multiple common bond charters: Credit unions with a multiple common bond charter may serve more than one specific occupation or association.
  • Community charters: Community credit unions serve anyone living, working, or studying within a particular geographic area.

Anyone who lives, works, or studies in Texas is eligible to join Amplify Credit Union and maintain their membership—wherever life takes them.

Why Choose a Credit Union

Because credit unions are smaller, member-owned organizations, they can offer a ton of benefits. Here are a few reasons to choose a credit union over a traditional big-box bank.

1. Higher interest rates on savings and checking accounts

Instead of focusing on bringing in profits, credit unions aim to give back to their members. This means you can typically expect higher interest rates on your savings and checking accounts. However, if the Federal Reserve has set their own rates low, even as low as 0%, most financial institutions will lower their rates to match.

2. Lower interest rates on loans

When you take out a large loan, interest rates matter. Even a small difference in your interest rate can mean savings (or spending) thousands. Credit unions aim to offer the most competitive rates on home mortgages, personal loans, auto loans, and more.

3. Lower fees

Credit unions often have lower fees—or no fees!–for maintaining basic accounts compared to other types of financial institutions.

4. Voting rights

As a member of a credit union cooperative, you have a say in how it’s run. There are annual meetings for members to vote, including voting for the selection of board members. Every member gets one vote, regardless of how many accounts you have or how much money you have in deposits.

5. Personalized customer service

Credit unions pride themselves on the level of customer service they provide each and every member that walks through their doors. You can expect a more personalized experience when you bank at a credit union.

6. Community focus

Credit unions place a large emphasis on giving back to their communities beyond those that bank with them. Many are involved in local organizations that seek to better the cities and towns that they serve and provide aid to those who need it most.

At Amplify, we are committed to giving back to three nonprofits in our community: Saint Louise House, American Red Cross of Central & South Texas, and Caritas of Austin.

Join a Credit Union

Credit unions offer a whole host of benefits that for-profit financial institutions can’t provide. The operating philosophy of every credit union is “not for profit, but for service.”

Before making any decision, a credit union like Amplify will ask, “Is this in the best interest of the members?” The sole reason credit unions exist is to serve their members, and they treat every member with the respect and consideration that implies.

If you’re ready to join a credit union, learn more about what Amplify has to offer and how you can get started today.

Become an Amplify Member

Every Amplify account holder enjoys fee-free banking. That means no overdraft, maintenance, or other banking fees cutting into your pocket.

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Katie Duncan

Katie Duncan is a financial writer based in Austin, Texas. Her articles include financial advice for freelancers, homebuyers, and more. When she’s not writing, Katie loves traveling and exploring the outdoors with her friends and her dog, Poe.