Both credit unions and banks offer products and services that can help your small businesses, but you may find one preferable to the other depending on your business needs.
Credit Union | Bank | |
|---|---|---|
Best for Businesses Seeking ... | Strong customer service focus, higher interest, and low monthly fees and loan rates | More physical branches and ATM networks, advanced online and mobile banking options, and a wider range of business banking products and services |
Membership Requirement | ✓ | ✕ |
APY | Generally higher | |
Monthly Fees | $0 to $20 | |
Loan Rates | Typically lower as nonprofit institutions | |
Technology & Online Banking | Limited functions | More advanced |
Deposit Insurance | National Credit Union Administration (NCUA) | Federal Deposit Insurance Corporation (FDIC) |
Personal and Business Banking Products & Services | ||
Physical Locations for In-person Transactions & ATM Network Access | Fewer branches than traditional banks | More branches than credit unions |
Pro | Offers better rates on deposit accounts and loan products | Often has lower deposit rates and higher loan rates |
Con | Is more restrictive in its membership, with requirements ranging from a fee for joining to specific geographic or employment requirements | Is available to all customers |
When To Use Each
Credit Union
- You prefer fewer fees and higher interest rates on deposits: Credit unions allow business owners to save more by offering reduced fees and even fee-free services and products. They also offer one of the best ways to earn interest in your business by providing higher rates of interest on deposit accounts than banks.
- You have basic business banking needs and are satisfied with fewer physical branches: If you only need essential products and services, then a credit union is suitable for you. Compared to banks, credit unions don’t have a lot of physical branches available nationwide.
- You prioritize strong customer service: Credit unions offer more personalized customer service since members own them.
- You’re eligible for membership: If you live or own a business in a certain area or are part of an eligible organization, then you can apply as a member of a credit union.
Here are three of the best credit unions for small businesses:
Bank
- You need access to more physical branches and ATM networks nationwide: Traditional banks have brick-and-mortar branches in one or more states. They also have wider access to more ATM networks, making it convenient for their customers to perform transactions.
- You prefer a wide range of business banking products and services: A full-service bank offers various financial products and services, such as business checking and savings accounts, CDs, money market accounts, loans, credit cards, small business insurance, retirement plans, merchant services, and investments.
- You want to take advantage of advanced online and mobile banking options: Banks are equipped with great technology and offer a better online and mobile banking experience. If you don’t have a lot of cash transactions, consider opening an account with an online bank. A good starting point would be our guide to the best online business banks.
- You seek fewer restrictions for opening an account: Banks are inclusive and don’t require any membership.
Here are three of the best bank accounts for small businesses:
Credit Union vs Bank for Small Business: Features Compared
Credit Union | Bank | |
|---|---|---|
OVERALL RATING | 3.9 out of 5★ | 4.4 out of 5★ |
Available Products | ★★★★ | ★★★★★ |
Monthly Fees | ★★★★ | ★★★ |
Deposit Insurance | ★★★★ | ★★★★★ |
Network Availability | ★★★★ | ★★★★★ |
Interest Rates | ★★★★ | ★★★★ |
Technology & Online Banking Experience | ★★★ | ★★★★ |
Ownership/ Membership | ★★★★ | ★★★★★ |
Rating Explanation:
★★★★★ 5: This feature enhances your financial experience at no cost.
★★★★ 4: This feature has a few minor drawbacks/limits or comes at a slight cost.
★★★ 3: This feature has a few drawbacks/limits or comes at a slightly high cost.
★★ 2: This feature has a few major drawbacks/limits and comes at a high cost.
★ 1: This feature has major drawbacks/limits.
0: This feature is unavailable.
Credit Union: 4 out of 5
Credit unions offer business savings and checking accounts, CDs, money market products, business loans, credit cards, investment, merchant services, and insurance services. However, some smaller credit unions for business may offer only basic business banking products and lack robust services available at bigger banks.
Bank: 5 out of 5
Most banks, including community banks, provide a wide variety of business savings and checking accounts. These include CDs, money market products, business loans, credit cards, retirement plans, merchant services, investments, and insurance services.
Credit Union: 4 out of 5
The monthly fees charged by credit unions range from $0 to $20. Many credit unions offer free checking accounts with no minimum balance requirements, but some charge fees for certain types of business checking accounts.
Bank: 3 out of 5
Meanwhile, banks can charge monthly fees as high as $35 to $40. Since banks are structured to earn profits, they typically have more (and higher) fees in comparison to credit unions. However, some banks offer free business checking accounts.
See our list of the best free business checking accounts for more details.
Credit Union: 4 out of 5
Each credit union member is covered up to $250,000 by the NCUA.
Bank: 5 out of 5
Clients are covered by FDIC insurance up to $250,000, but some banks can offer as high as $150 million through their partner banks and their sweep network, where customer deposits are spread out to several banks for extended fund protection.
Read more about FDIC Insurance for business accounts and how it works.
Credit Union: 4 out of 5
Credit unions have a limited number of branches available. Most of them are part of a network that allows access to shared branches and ATMs nationwide.
Bank: 5 out of 5
Big traditional banks have several brick-and-mortar branches and large ATM networks available nationwide while online-only banks don’t have physical branches; though they offer access to the largest ATM networks.
Check out our guide to the best online business banks for more information.
Credit Union: 4 out of 5
Credit unions typically offer higher APYs on deposits and lower interest rates on loans since they’re nonprofit institutions.
Bank: 4 out of 5
Traditional banks generally offer lower APYs on deposits and higher interest rates on loans, although online-only banks may offer higher deposit rates and lower loan rates since their operational expenses tend to be fewer than traditional banks.
Check out our comparison of online vs traditional banking to learn more about their differences and advantages.
Credit Union: 3 out of 5
Credit unions have access to advanced technology and deliver an online banking experience—but the functions may be limited. Although rare, some credit unions also provide seamless digital and mobile banking options.
Bank: 4 out of 5
Traditional banks and online-only banks have more advanced online and mobile platforms for small business than credit unions, especially bigger banks with higher budgets for technology. Both provide a superb online banking experience with more technical upgrades and functions and features for online banking services.
Credit Union: 4 out of 5
Credit unions can only open financial accounts for members. Although some credit unions have geographic requirements, most allow you to make a small one-time donation to become a member. As they’re owned by members, they can vote on policies of the credit unions and have a voice in decision-making.
Bank: 5 out of 5
Banks don’t require membership to open an account, and anyone is eligible to open one. The restrictions in opening a business bank account can include the geographic location of your company and your business industry, such as gambling and marijuana dispensaries, which are common across both banks and credit unions. In general, investors own the bank, while the customers can’t dictate how it’s operated.
Benefits & Drawbacks of a Credit Union vs Bank for Small Businesses
Financial Institution | Benefits | Drawbacks |
|---|---|---|
Credit Union |
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Bank |
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Factors You Should Consider Before Choosing a Bank or Credit Union for Small Business
- Accessibility: Is your business located near a credit union or bank branch? Will you be needing in-person banking often?
- Financial products and services: What types of products and services fit your business needs?
- Fees: Do you use an ATM card often? If yes, check the ATM fees of the bank or credit union you’re choosing. Some don’t charge ATM fees, while others offer rebates.
- Interest rates: Are you looking to apply for loans? Loan interest rates are lower at credit unions than at banks. Are you seeking to earn higher APYs? Credit unions offer higher deposit interest rates but online banks also provide competitive rates.
- Membership requirements: Are you open to signing up as a member of a credit union or do you prefer the convenience of opening an account with a bank?
Key Statistics Comparing Banks vs Credit Unions
FDIC-insured Banks | NCUA-insured Credit Unions | |||
|---|---|---|---|---|
June 2022 | June 2023 | June 2022 | June 2023 | |
Number of Banks & Credit Unions | 4,771 | 4,645 | 4,853 | 4,686 |
$23,718 | $23,465 | $2,136.50 | $2,218.70 | |
$11,772 | $12,299 | $1,387 | $1,561.70 | |
$64.411 | $70.772 | $17.80 | $17.40 | |
- The number of FDIC-insured banks in the second quarter of 2023 is now at 4,645, a slight decline from the previous year’s 4,771.
- Similar to banks, the number of NCUA-insured credit unions also declined from 4,853 in the second quarter of 2022 down to 4,686 in the same quarter of 2023.
- Total assets in FDIC-insured banks have declined by $253 billion, or 1.07%.
- Total assets in NCUA-insured credit unions increased by $82.20 billion, or 3.85%.
- Total loans in FDIC-insured banks increased by $527 billion, or 4.5%.
- Total loans in NCUA-insured credit unions increased by $174.70 billion, or 12.6%.
- The net income of FDIC-insured banks has increased to $70.772 billion compared to the previous year’s second-quarter net income, a difference of $6.4 billion or 9.9%.
- The net income of NCUA-insured credit unions has reduced to $17.40 billion in the second quarter of 2023 compared to the same period last year, a difference of $.40 billion or 2.2%.
Frequently Asked Questions (FAQs)
Money in a bank is safer than in a credit union since banks offer sweep programs that allow you to insure your business funds beyond the FDIC limit of $250,000. However, if you’re mindful of the $250,000 FDIC and NCUA limit, your money would be equally protected in either a bank or a credit union.
With credit unions, business owners can obtain lower fees, high deposit interest rates, and lower interest rates on loans compared to banks. They also provide more personalized customer service to their members. Further, the members can benefit from easy loan approval and participate in policies and decision-making on how to run the credit union.
Credit unions offer limited convenience due to fewer ATM and branch networks and less advanced technology compared to banks, especially involving mobile banking. Also, their financial products and services aren’t as extensive compared to banks.
Banks aren’t necessarily better than credit unions. Both offer benefits and drawbacks so choosing one over the other depends on your business needs and what you value. You may want to consider different factors before deciding, such as accessibility, types of financial products and services offered, fees, interest rates, and membership requirements.
Bottom Line
Which is better: a bank or credit union for small business owners? When deciding, it’s important to consider your business banking needs and priorities. You may want to go with a credit union if you are eligible for membership and prefer better customer service and a more intimate banking setup. If your priority is more advanced technology and a wide array of banking products and services, then working with a bank may be the better option.
