Credit union vs. bank checking accounts

While it may initially feel like a toss-up, where you choose to open a checking account can have several significant implications on your everyday financial life. For most people, the decision comes down to two options: a credit union or a bank checking account.

Depending on which one you choose, you'll end up with a unique set of interest rates, fees, account benefits and customer service experiences. Think of it as choosing between two different financial ecosystems, each with its own set of advantages and potential drawbacks. Generally speaking, credit unions tend to offer lower fees and more personalized customer service, while banks tend to have more diverse options for accounts.

While there is no perfect choice that applies to everyone, taking the time to review and understand the main differences between credit union and bank checking accounts will help ensure that you make the best decision for your unique financial needs.

What you’ll learn

• Ownership and structure
• Account eligibility and requirements
• Fees and overdraft costs
• Interest rates on checking accounts
• Digital and mobile banking
• ATM access
• Federal oversight and insurance
• Finding the best place for your money

Ownership and structure

Before we examine things like fees and services, it's important to understand the fundamental difference between credit unions and banks. Credit unions are not-for-profit financial cooperatives owned by their members, while banks are for-profit institutions owned by shareholders. This core difference profoundly affects how they operate and make decisions.

Credit union models often result in better rates and lower fees, as credit unions are focused on serving their members rather than maximizing profits. Having a say in how the credit union is run, members often feel more invested and have a stronger sense of ownership over their financial institution. Banks, on the other hand, are generally more profit-driven and may have higher fees or lower interest rates to increase their bottom line.

Account eligibility and requirements

Credit unions, being member-owned, may impose more specific eligibility criteria for account openings. These membership requirements might be based on geographic location, employment or association with certain groups. While this might seem restrictive, many credit unions offer a simple workaround: a one-time membership fee that allows you to join even if you don’t meet the usual eligibility criteria. For example, if you don't meet other eligibility criteria, Alliant Credit Union allows you to become eligible through a one-time $5 contribution that Alliant will make on your behalf to the Alliant Credit Union Foundation.

Banks, on the other hand, typically have no such membership requirements. However, they may impose stricter conditions on account holders, such as requiring higher minimum balances or regular direct deposits to avoid monthly fees.

Fees and overdraft costs

When it comes to fees and overdraft costs, credit unions generally have the advantage. Due to their not-for-profit status, credit unions typically charge lower or no fees for account maintenance, overdrafts and ATM use. This focus on affordability makes credit unions a great option for those looking to minimize their banking expenses. Alliant's high-yield checking account, for example, has no monthly service fee (with e-Statements), no overdraft fees,⁶⁵ and zero minimum balance requirements.

In contrast, banks, particularly large national banks, tend to have higher fees across the board. These can include steep overdraft fees, inactivity fees and monthly maintenance fees. While some larger banks offer ways to waive these fees, it may be more difficult to do so with a small-to-medium-sized bank compared to a credit union.

Traditional banks often attempt to justify these fees by pointing to a more diverse set of services and quick access to modern technology. This can be a plus for some customers but might not be worth the extra cost for those who don't take full advantage of these additional features.

Interest rates on checking accounts

Interest rates on checking accounts are another area where credit unions tend to outperform many banks. Due to their not-for-profit status, credit unions are often able to offer higher interest rates on checking accounts compared to traditional banks. This means that the money sitting in your checking account can earn some interest, rather than just sitting there doing nothing.

One notable exception to this trend is some online banks, which are often able to offer higher interest rates on checking accounts due to their lower overhead costs.

It's important to note that these higher interest rates don't necessarily apply to all credit unions and may vary depending on the specific institution. It's always a good idea to compare rates between different banks and credit unions before opening an account.

Digital and mobile banking

Over the past decade, digital and mobile banking have become increasingly important for customers. Banks, particularly large national ones, tend to lead in this area, offering advanced features such as mobile check deposits, seamless online transfers, and even budgeting tools integrated within their apps. These features are often funded by their higher fee structures, which allow them to invest heavily in technology.

Credit unions, especially smaller ones, may lag behind banks in digital innovation. However, this gap is closing as many credit unions invest heavily in their digital infrastructure to meet consumer demand.

For instance, Alliant's mobile app includes features like mobile check deposit, account balance tracking, fund transfers, and the ability to locate in-network ATMs. While some credit unions may still have limited capabilities, institutions like Alliant are proving that credit unions can compete effectively in the digital and mobile banking space.

ATM access

In terms of ATM access, banks generally provide more extensive coverage. Large national banks often have a wide network of ATMs, particularly in urban and suburban areas, making it convenient for customers to withdraw cash or manage their accounts without worrying about fees.

Many credit unions, including Alliant, participate in shared ATM networks. For instance, with the Alliant Visa® contactless debit card, you can access more than 80,000 fee free ATMs nationwide.⁵⁹ Alliant even provides a rebate of up to $20 per month if you use an out-of-network ATM, helping you access your money without incurring excessive fees.

Federal oversight and insurance

Both banks and credit unions offer federal oversight and insurance to protect customers' deposits. Banks are regulated by the Federal Deposit Insurance Corporation (FDIC), which insures accounts for up to $250,000 per depositor in case of bank failure.

Credit unions, on the other hand, are insured by the National Credit Union Administration (NCUA), which provides similar insurance coverage through the National Credit Union Share Insurance Fund (NCUSIF). Like the FDIC, this coverage also protects up to $250,000 per member account.

Finding the best place for your money

Choosing between a credit union and a bank comes down to your individual banking needs and preferences. If you prioritize lower fees, personalized service and the opportunity to be part of a member-owned institution, a credit union may be the best fit for you. On the other hand, if you value extensive customer service hours, advanced technology, and widespread accessibility, a traditional bank might be more suitable.

In some cases, credit unions like Alliant can provide the best of both worlds by offering competitive rates and fees, along with modern banking solutions. No matter what option you're leaning toward, always be sure to thoroughly research each specific financial institution and its offerings to find the best fit for your unique financial goals and needs.