When most people think about managing money, they picture a traditional bank. But banks aren’t your only option. Credit unions are another popular way Americans save, borrow, and manage their finances — and for many people, they can be a better fit.
So what exactly is a credit union, and how is it different from a bank? Let’s break it down in simple terms.
What Is a Credit Union?
A credit union is a member-owned financial institution that offers many of the same services as a bank. You can open checking and savings accounts, take out loans, use debit cards, and access online banking.
The big difference is ownership.
Banks are for-profit companies owned by shareholders. Credit unions, on the other hand, are owned by the people who use them — their members. When you open an account at a credit union, you’re not just a customer. You’re also a part-owner.
Because of this structure, credit unions operate as nonprofit organizations. Their main goal isn’t to make money for investors, but to serve their members.
How Credit Unions Work
Credit unions run on a cooperative model. Members pool their money together, and that money is used to:
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Provide loans to other members
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Pay interest on savings and certificates
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Cover operating costs
Any surplus income doesn’t go to shareholders. Instead, it goes back to members in the form of:
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Lower loan interest rates
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Higher savings rates
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Fewer and lower fees
Think of it like a financial community where everyone benefits from participating.
Who Can Join a Credit Union?
In the past, credit unions were very limited in who could join. Membership was usually based on a shared connection, such as:
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Working for the same employer
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Belonging to the same organization
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Living in a certain area
Today, many credit unions have expanded their membership rules. Some allow almost anyone to join, while others still require a specific connection.
To become a member, you usually need to open a savings account with a small deposit — often as little as $5 or $10. Once you do, you officially become a member-owner.
Every member gets one vote in major decisions, regardless of how much money they have in their accounts. Your voice counts just as much as anyone else’s.
Credit Unions vs. Banks: Key Differences
While credit unions and banks offer similar services, there are some important differences to know.
1. Lower Fees and Better Rates
Because credit unions don’t have to generate profits for shareholders or pay corporate income taxes, they can often offer better deals.
Many credit unions provide:
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Higher interest rates on savings and CDs
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Lower interest rates on auto loans, personal loans, and mortgages
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Fewer monthly maintenance fees
Even small differences in rates can add up over time, especially for long-term savings or large loans like a mortgage.
Real-life example:
If you earn slightly more interest on your savings each year, that extra money compounds over time — helping your balance grow faster without any extra effort.
2. Fewer Branch Locations
One downside of credit unions is that they usually have fewer physical branches than big national banks.
If you prefer face-to-face service or frequently visit a branch, this can be inconvenient. However, many credit unions make up for this by offering:
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Online and mobile banking
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Large shared ATM networks
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Mobile check deposit
For people who mainly bank online, the limited number of branches may not matter much.
3. Simpler Technology (Sometimes)
Large banks often have bigger budgets for advanced apps and digital tools. Smaller credit unions may have more basic websites or mobile apps.
That said, many mid-sized and large credit unions now offer mobile apps and online features that are just as easy to use as those from major banks.
4. Fewer Product Choices
Banks tend to offer a wider variety of financial products, especially when it comes to credit cards and specialized accounts.
A big bank might offer dozens of different credit cards with rewards, travel perks, or cash back. A credit union may only offer one or a few options.
For many people, fewer choices isn’t a problem — especially if the rates and fees are better.
5. More Traditional Business Hours
Banks often stay open later and offer weekend hours. Credit unions sometimes keep shorter business hours, especially smaller ones.
However, many credit unions provide phone support, online chat, or 24-hour customer service lines to make up for it.
Are Credit Union Accounts Safe?
Yes. Credit union accounts are protected, just like bank accounts.
While banks are insured by the FDIC, credit unions are insured by the National Credit Union Administration (NCUA).
NCUA insurance covers up to $250,000 per account type, per member, including:
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Individual accounts
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Joint accounts
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Retirement accounts (like IRAs)
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Business accounts
For example, if you have a personal account, a retirement account, and a business account at the same credit union, each one is insured separately.
What Are the Main Benefits of Credit Unions?
Most credit unions focus on member value rather than profit. Common benefits include:
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Lower loan interest rates
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Higher savings rates
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Reduced or fewer fees
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Personalized customer service
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Community-focused decision-making
Many members feel credit unions are more approachable and less sales-driven than large banks.
How Do You Join a Credit Union?
Joining a credit union is usually simple:
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Find a credit union you’re eligible to join
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Complete a membership application (online or in person)
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Open a savings account with a small deposit
Once your account is open, you can use all the services the credit union offers.
The Bottom Line
Credit unions are smaller, member-owned financial institutions designed to serve people — not shareholders. While they may have fewer branches and product options than big banks, they often make up for it with better rates, lower fees, and more personalized service.
If you value saving money on fees and interest, and you don’t need a branch on every corner, a credit union could be a smart alternative to traditional banking.
For many everyday Americans, credit unions offer a simpler, more affordable way to manage money — while keeping your financial goals front and center.
