How to Choose Between a Credit Union and a Commercial Bank

Written By Melanie Green
Last updated October 7, 2021

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Personal Finance
October 7, 2021

Simple. Thrifty. Living.

When you think of where to put your money, what comes to mind? A credit union or commercial bank? They both seem like very different entities, but it’s not always easy to differentiate the two. Is one better than the other? The answer might depend on what you’re looking for in a financial institution. Here are some ways that credit unions and commercial banks differ so you can decide which is best for you!

The industry classifies credit unions in one of two ways: Member-owned or non-member-owned. Member-owned credit unions are owned by their members or individuals who have become members. Members create and govern member-owned credit unions. Non-member-owned credit unions are owned by other entities, such as a small business or large corporation, or by a trust. The National Credit Union Administration usually regulates credit unions.

A commercial bank is a financial institution where you can deposit money or take out loans. This is often a branch of a larger commercial bank. Some common national commercial banks are Chase, Bank of America, or Wells Fargo. The type of interest rate that is offered to you often depends on how much money you have invested. Commercial banks may offer other services, such as financial advising, too.

What’s the difference between a credit union versus a commercial bank? Both let you save money and take out loans. However, the two are not as distinct as some would assume. The biggest difference is who enforces regulations. The federal government regulates commercial banks, whereas credit unions are government-chartered and regulated by the National Credit Union Administration. Many credit unions are members of this association.

A commercial bank has multiple products that are offered to their customers. The commercial bank aims to makes a profit. A credit union does not operate under this model. A credit union typically has no minimum balance requirement or minimum deposit period. Commercial banks have minimum deposit thresholds.

Another difference is that a commercial bank has more branches they operate. A credit union is usually specific to a local region. If you travel a lot, this could be an issue if you need more than an ATM.

Credit unions offer higher interest rates to their members than do commercial banks because credit unions have to act more like non-profit organizations than profit-making banks. The credit union is simply a place to save your money for any reason, whether that be college, a wedding or a mortgage. These funds stay within the credit union. With a bank, the interest rates are lower, as the bank needs to show a profit.

When you deposit money into your checking account at a credit union, you’re probably getting the better deal. If you get a statement from your credit union, it will be cheaper than any other bank because it’s mostly interest-earning money rather than the usual transaction fees. Some credit unions even offer free checking accounts. Many also give you free or reduced-rate ATM fees for the withdrawals you make. You can find credit unions in many big and small cities.

Commercial banks often require you to get a certain minimum balance to open an account. If you don’t meet the requirement, you are out of luck. If you meet the requirement, they may limit you to how many withdrawals that you can make from the account. Credit unions tend to offer great interest rates on savings accounts.

Each financial institution accepts deposits, but credit unions typically focus on small businesses or individual customers. It may or may not have a mobile app where you can make deposits. Commercial banks are of a larger size and focus on customer service and convenience. Nearly all the major commercial banks operate their own mobile apps where you can deposit checks without having to go into the bank.

Your financial plan is as individual as you are. Before choosing between a credit union and a commercial bank, consider your needs and goals. Talk to trusted financial advisors to discuss your options and find which type of institution fits your needs best.

Credit Union Requirements

Credit unions have lower deposit limits and can have higher interest rates and fewer fees. However, a credit union is more limited in the services it offers and in the location it serves. You likely will need to become a member to open an account.

Commercial Bank Requirements

Commercial banks have requirements for checking accounts including minimums and automatic deposit limits. They often have text and mobile banking, ATMs, and sometimes have credit or income requirements. Commercial banks offer a wider array of products and services including financial advising, cashier’s checks, and money orders.

Best Fit

Credit unions and commercial banks both offer you the opportunity to save money, get a loan and use your accounts. You can find credit unions in almost every state. It’s important to know your options before making your choice. Both commercial banks and credit unions are good places for people with different needs.

About the Author

Melanie Green

I'm a professional freelance writer living in Tampa, FL. I've been freelancing full-time since 2012, maintaining key relationships with my clients through always aiming to exceed their expectations. I have an MFA in Creative Writing with a concentration in screenplay writing from National University, as well as a Bachelor of Arts in Writing. I love writing about a wide range of topics including movies, technology, food and business marketing.

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