At first glance, credit unions seem a lot like traditional banks. They may offer a lot of the same financial products, from deposit accounts to loans to credit cards.
But upon closer inspection, they operate differently and offer unique benefits and drawbacks.
CNBC Select explains what a credit union is, how it differs from a bank, how to become a member and the pros and cons of banking of opening an account.
What is a credit union?
A credit union is a nonprofit financial institution owned by the people who use its financial products. Members can access the same kinds of products and services offered by a traditional bank — credit cards, checking and savings accounts, mortgages, car loans — but elect a board of directors to ensure that their best interests are represented.
According to DepositAccounts, the three largest credit unions by assets are Navy Federal Credit Union, State Employees' Credit Union and PenFed Credit Union.
Credit unions serve their members by offering competitive products with better rates and lower fees than you see with a for-profit bank. The interest and fees are reinvested back into the products rather than shared with shareholders.
Since credit unions are membership-based, you'll need to meet eligibility requirements to join and open an account, apply for a credit card or take out a loan.
How to join a credit union
You can become a member of a credit union in several ways: Some require a minimal deposit or membership fee, while others are limited to employees of certain companies, members of service organizations or residents of certain regions.
If you don't meet any of the eligibility requirements, some credit unions allow you to become a member by joining a participating organization. This sometimes comes with a small fee, although the credit union might pay it on your behalf.
For instance, Alliant Credit Union allows you to become a member by joining the charity Foster Care to Success, and Alliant pays the $5 fee on your behalf.
Alliant Credit Union
Annual Percentage Rate (APR)
Starts at 10.49% APR
Loan purpose
Debt consolidation, home improvement, or emergencies
Loan amounts
$1,000 to $50,000
Terms
1 – 5 years
Credit needed
Not disclosed
Origination fee
None
Early payoff penalty
None
Late fee
Not disclosed
See our methodology, terms apply.
Top credit unions
PenFed Credit Union
PenFed Platinum Rewards Visa Signature® Card
Rewards
5X points on gas purchases at the pump and electrical vehicle charging stations, 3X points on purchases at the supermarket (including most Target and Walmart locations†), restaurants, and TV, radio, cable, streaming services
Welcome bonus
15,000 points when you spend $1,500 in first 90 days
Annual fee
$0
Intro APR
0% introductory APR for 12 months on balance transfers made in the first 60 days after account opening.*
Regular APR
17.99% variable on purchases; 17.99% non-variable on balance transfers
Balance transfer fee
3%
Foreign transaction fee
None
Credit needed
Good/Excellent
Terms apply.
Pros
- High 5X points on gas at the pump and 3X on supermarket purchases
- No bonus category activations
- Good special financing offer on balance transfers
Cons
- 3% balance transfer fee
*0% introductory APR for 12 months on balance transfers made in the first 60 days after account opening. After that, the APR for the unpaid balance and any new balance transfers will be a non-variable rate of 17.99%. 3% balance transfer fee per transaction. Subject to credit approval. If you take advantage of this balance transfer, you will immediately be charged interest on all purchases made with your credit card unless you pay the entire account balance, including balance transfers, in full each month by the payment due date.
PenFed Credit Union offers access to 85,000-plus fee-free ATMs, as well as credit cards, checking and savings accounts, mortgages, auto, personal and student loans.
Consumers Credit Union
Consumers Credit Union Rewards Checking
Annual Percentage Yield (APY)
Up to 5.00% APY on balances up to $10,000 (0.20% APY on up to $25,000 and 0.10% APY thereafter); 0.01% APY if don't meet requirements
Minimum deposit to open
$5
Minimum balance
None
Monthly fee
None
Free ATM network
Yes, over 30,000 ATMs
ATM fee reimbursement
Unlimited reimbursement for any and all ATM fees
Overdraft fee
Fees may apply; overdraft protection is available
Mobile check deposit
Yes
Terms apply.
Pros
- High APY for a checking account
- Low minimum deposit required
- No minimum balance
- No monthly fees
- Fee-free ATM network
- Offers ATM fee reimbursement
- Overdraft protection available
- Get paid as much as two days early with early direct deposit
Cons
- Requirements to earn high APY
- Overdraft fee possible
- Credit union membership required
Consumers Credit Union stands out as one of the best credit unions for offering one of the top high-yield checking accounts.
First Tech Federal Credit Union
Choice Rewards World Mastercard®
Rewards
Earn 2X points on groceries, gas, electronics, medical, household goods and telecommunications, 1X points on all other purchases
Welcome bonus
Earn 20,000 points when you spend $3,000 in the first 60 days from account opening
Annual fee
$0
Intro APR
None
Regular APR
11.75% - 18.00% variable
Balance transfer fee
None
Foreign transaction fee
None
Credit needed
Fair to excellent
Terms apply.
Pros
- Low APR
- No annual fee
- Popular 2X rewards categories
Cons
- Below average amount of time to earn the card's welcome bonus
- No option to transfer points to travel programs
First Tech Federal Credit Union offers some of the top low-interest credit cards, as well as a variety of checking and savings accounts, IRAs, mortgages, personal, auto and student refinance loans.
Navy Federal Credit Union
Navy Federal Credit Union is only open to active duty service members, veterans and their families. but it has stellar customer satisfaction scores from J.D. Power, as well as low interest rates on credit cards, checking and savings accounts, mortgages and more.
How credit unions differ from banks
While credit unions are similar to banks, there are a few factors that set them apart. Here's a breakdown of the main differences:
Credit union vs. bank
| Credit union | Bank | |
|---|---|---|
| Structure | Nonprofit | For profit |
| Membership required | Yes | No |
| Branch access | Typically local | Typically national |
| Amount of product offerings | More limited | Wide variety |
| Deposit insurance | Yes, by National Credit Union Administration (NCUA) | Yes, by Federal Deposit Insurance Corporation (FDIC) |
The main difference between credit unions and banks is that credit unions are nonprofit, member-only financial institutions, whereas banks are for-profit institutions open to anyone. In addition, credit unions were often created to serve specific regions, communities or businesses, so they are known for providing better in-person customer service at their physical branch locations.
There may be a smaller selection of product offerings with a credit union: For example, it may only offer one or two credit card options, compared to a bank with a dozen options.
But credit unions offer some of the best terms, thanks to how they reinvest profits back into the business.
Credit unions insure $250,000 per account owner like banks do but, rather than the Federal Deposit Insurance Corporation, the funds are guaranteed by the National Credit Union Administration.
Pros and cons of credit unions
- Lower interest rates on credit cards, loans and mortgages
- Higher interest rates on deposits
- Personalized customer service
- Membership requirements may be stringent
- Fewer product offerings
- Limited branch locations and less innovative digital offerings
Credit union FAQs
Are credit unions better than banks?
Both banks and credit unions offer a variety of financial services, so it's not so much a question of one being "better" as it is which fits your needs. Credit unions are nonprofit, member-driven organizations that often offer better rates and lower fees but have fewer locations and a less robust online presence. While you can find products like checking and savings accounts, mortgages, personal loans and credit cards at both, the variety of options may be more limited with a credit union.
What is the downside to joining a credit union?
The biggest downside to credit unions is that they require you to become a member to open an account. Eligibility requirements can be strict, like requiring members to live in certain areas, work with a particular company or have an affiliation with the military or other group.
Is USAA a credit union?
No, USAA is a federal savings bank that provides insurance and banking products and is insured by the FDIC. It is not a credit union.
Are credit unions FDIC insured?
While your money is just as safe in a credit union as in a bank, funds are not insured by the Federal Deposit Insurance Corporation. Instead, they are guaranteed by the National Credit Union Administration up to $250,000 per account owner (the same as banks).
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