Differences Between Banks and Credit Unions

Credit unions are significantly smaller in size than most banks, and are structured to serve a particular region, industry or group. For example, Wells Fargo has over 8,800 branches and 13,000 ATMs across the country, while the Navy Federal Credit Union (NFCU) – the largest credit union by asset size in the U.S., open to members of the military – has 300 branches, with many near military bases. However, just because most credit unions have fewer branches does not mean they cannot have a similar reach as the big banks. Many credit unions are part of an ATM network designed to expand their reach. Counting this network, as well as their own, Navy Federal Credit Union members have access to over 52,000 ATMs nationwide, for example, over four times the number of Wells Fargo ATMs.

While credit unions and banks generally offer the same services, such as accepting deposits, lending money and offering financial products (credit and debit cards, Certificates of Deposit (CDs), etc.), there are key structural differences that affect the ways in which the two types of institutions make money. The biggest difference is that banks function to generate profits for their shareholders, while credit unions operate as not-for-profit organizations designed to serve their members, who also are de facto owners.

For banks, the need to deliver profits to the bottom line usually results in more and higher fees, lower returns on deposits and higher lending rates than credit unions. While credit unions still must make enough to cover their operations, the absence of the need to generate profits generally allows for lower fees and account minimums, higher rates on savings, and lower borrowing rates for their members/owners. In this paradigm, the process credit unions use for generating revenue benefits the members who have accounts with the institution, rather than shareholders focused on profitability.