Credit Union vs Bank: Which Is Better for Your Business?
Benilyn has over a decade of experience as a banking officer. Her expertise is featured throughout Fit Small Business in personal finance, credit card, and real estate investing content.
This article is part of a larger series on Business Banking.
Banks and credit unions are financial institutions that provide a variety of business banking products and services. The main difference between a bank and a credit union is that a bank operates for profit and is available to anyone, while a credit union is a nonprofit financial institution that’s available only to eligible members.
Credit Union vs Bank at a Glance
Credit Union | Bank | |
|---|---|---|
Available Products | Business savings and checking accounts, business loans, credit cards, investment, and insurance services | Business savings and checking accounts, business loans, credit cards, investment, and insurance services |
Monthly | $0 to $20 | Could go as high as $35 |
Deposit Insurance | Covered by National Credit Union Administration (NCUA) | Covered by Federal Deposit Insurance Corporation (FDIC) |
Network Availability | Limited branches available—most are part of shared branches and ATM networks nationwide | Big traditional banks have branches and ATMs available nationwide—online-only banks don’t have physical branches |
Interest Rates | Typically offers higher interest rates on deposits and lower interest rates on loans because credit unions are nonprofit institutions | Traditional banks typically offer lower rates on deposits and higher rates on loans—online-only banks offer higher interest rates on deposits |
Technology & Online Banking Experience | Yes—however, functions may be limited | Yes—for both online-only and traditional banks |
Available Products
Both banks and credit unions offer the same types of financial products and services, including business savings and checking accounts, business loans, commercial real estate financing, business credit cards, investment services, and business insurance. However, smaller credit unions for business may only offer basic business banking products, such as business savings and checking accounts, and may not provide other services that are available with big banks.
Monthly Fees
Since banks are structured to earn profits, they typically have more fees―and higher fees―compared to credit unions. However, some banks also offer free business checking accounts, especially those that operate fully online. While many credit unions offer free checking accounts with no minimum balance requirements, some charge fees on certain types of business checking accounts.
Deposit Insurance: FDIC vs NCUA
Both banks and credit unions offer an equally safe place to deposit your business funds. Banks are covered by the FDIC while credit unions are covered by the NCUA. If a federally insured bank fails, your total deposits are covered by FDIC insurance up to $250,000. Similarly, the total deposits of credit union members are insured by NCUA insurance up to $250,000.
Network Availability
Most big traditional banks have several physical branches and large ATM networks available nationwide, while some smaller banks have just a limited number of branches and ATMs. Internet banks don’t have physical branches because they only operate online. While credit unions typically have a limited number of branches, most of them are part of a network that allows access to shared branches and ATMs nationwide.
Interest Rates
Credit unions typically offer lower interest rates on loans and higher annual percentage yields (APYs) on deposits; this is because credit unions are organized as nonprofits. Online-only banks may offer lower loan rates and higher deposit rates compared to their brick-and-mortar counterparts because they don’t have the same operational expenses as traditional banks.
Technology & Online Banking Experience
Since big banks have higher budgets for technology, their online and mobile platforms are typically more advanced than those of most credit unions. Banks tend to do more technical upgrades and offer more functions and features with their online banking services. However, although rare, you can also find credit unions that provide seamless digital and mobile banking options. It’s important to check the bank’s or credit union’s web-based and mobile banking platforms before you open a business account to ensure that it has all the features and functions you need.
When to Choose a Credit Union
A credit union is best for business owners who need basic business banking products and services and who are eligible for membership, such as live or work in a certain area, part of an eligible organization. It’s best to choose a credit union if you are looking for business bank accounts that have fewer fees and offer higher interest rates. A credit union is also a great option for businesses that don’t need a wide variety of banking services and won’t need to access physical branches nationwide.
When to Choose a Bank
Business owners who are looking for a wide selection of business banking products and services should consider banking with a full-service bank. If you need to access a physical branch, consider opening an account with a traditional bank. Otherwise, if your business does not often process cash transactions and won’t need to access an in-person branch, a purely digital bank may be a better option.
Pros & Cons of Credit Unions
| PROS | CONS |
|---|---|
| Fewer fees—some even offer fee-free banking | Limited branches |
| Higher interest rates on deposits | Need to be eligible for membership to open an account |
| Prioritize strong customer service | Few credit unions offer a wide selection of banking products and services |
Pros & Cons of Banks
| PROS | CONS |
|---|---|
| Traditional banks have more physical branches and ATM networks nationwide | Usually charge higher fees than credit unions |
| Offer a wide range of business banking products and services, including various loan options and business financial services | Typically offer lower interest rates on deposits |
| Available to anyone—no need for membership | Typically offer high interest rates on loans |
Bottom Line
When it comes to deciding whether a bank or a credit union is better for your business, 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 a better option.
