The Real Pros and Cons of Banking With a Credit Union

April 2nd 2017

Mike Rothschild

Comedian and actress Sarah Silverman made waves in March when she announced she'd be moving all of her personal wealth out of big banks and into a credit union, wanting to divest from doing business with companies she found objectionable.




But having more control over invested money can be just one of many reasons to join a credit union. These institutions have become an attractive alternative to banking conglomerates, and have over 100 million members in 6,200 credit unions in just the United States. Many offer the exact same financial products and have the same insurance that banks do, but are small and member-owned, with no corporate ties.

Doing your primary banking through a credit union has a number of advantages, but it also has drawbacks and risks. Each type of financial institution has unique perks, and no one solution is right for everyone.

If you're considering joining a credit union, here are four ways you might benefit:

1. Better interest rates for loans and savings.

Credit unions usually offer higher rates on savings accounts and CDs, and lower rates on loans, particularly for cars, according to U.S. News and World Report. "The National Credit Union Administration (NCUA) reports that as of June 2014, the five-year loans for new cars at banks have an average interest rate of 4.88 percent, compared with 2.74 percent for credit unions," the magazine wrote in 2015.

2. More responsive customer service.

"In the American Customer Satisfaction Index 2015 survey from CFI Group, credit unions beat banks, with customers rating their overall satisfaction at a score of 87 out of 100, 8 points greater than the banking average," reports.

3. They're owned by its members, not shareholders.

As non-profit entities, credit unions are owned by its members. The membership elects the credit union's board of directors, and every member has a vote. In contrast, banks are beholden to its shareholders, and are usually controlled by far-flung boards, with customers having little or no say in its activities.

4. With no shareholders to placate, it has lower fees.

Credit unions generally keep fees on checking, credit cards, and cash withdrawals as low as possible. "The 2015 [Credit Union National Alliance] Membership Benefits Report estimates that credit union members across the country saved nearly $8.5 billion during the 12 months ending in September 2015 by doing business at a credit union instead of a bank," according to Bankrate.

Even with these advantages, no financial institution is free of risk, and this includes credit unions.

Here are four cons to credit union membership.

1. Credit unions fail more than banks.

Because they're smaller and have less in assets, credit unions fail on average more than banks. Each has about the same number of institutions, but in 2016, the NCUA listed 18 credit unions that closed or merged; while just five banks failed in the same year. However, these institutions were all insured, and members lost no money.

2. They have fewer ATMs.

Traditionally, credit union members don't have the access to pull out cash the way bank customers do, though this is changing. More credit unions are forming co-ops that let members use the ATMs of members around the country, often refunding part or all of the user's ATM fees.

3. Membership is restricted.

While anyone can join a credit union, most restrict its membership to certain groups with commonality, such as residents of a particular area, employees of a company, or members of a union or military branch. There's also usually a small fee for purchasing a share of the institution.

4. Its products have fewer rewards.

Credit union credit cards usually don't have the rewards programs that big bank cards do, such as cash back or rewards points. The upside of this, though, is that credit union cards often have lower interest rates.

In the end, it's up to each person to decide what they're looking for in a financial institution, and how to best fill those needs. It's also possible to bank with both, making use of the advantages that both banks and credit unions have to offer.