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When deciding between a bank and a credit union, safety is often a top consideration. Credit unions are sometimes viewed as being slightly safer than banks, but is that really the case? Here’s what you need to know about the differences between credit unions and banks.

Key Differences Between Credit Unions and Banks

While banks and credit unions offer similar services and are both federally insured, there are a few important distinctions.

1. Insurance: 

Both banks and credit unions insure deposits up to $250,000 per depositor, per institution, per ownership category. However, banks are insured by the Federal Deposit Insurance Corporation (FDIC), while credit unions are insured by the National Credit Union Administration (NCUA).

2. Membership Requirements: 

Banks are open to everyone, whereas credit unions require membership based on certain eligibility criteria, such as living in a specific area or working for a particular employer.

3. Organizational Structure: 

Banks operate as for-profit businesses, while credit unions are nonprofit. Credit union members are also partial owners and can influence the organization’s decisions.

4. Interest Rates: 

Because credit unions don’t prioritize profit, they often provide lower interest rates on loans and higher rates on savings compared to banks.

5. Fees: 

Banks generally charge higher fees, as they need to generate profit. Credit unions, as member-focused nonprofits, can often afford to reduce fees.

6. Technology: 

Banks are usually more advanced in terms of technology, often offering more robust online and mobile banking tools than credit unions.

7. Accessibility: 

Banks typically have a wider network of branches and ATMs, while credit unions may be limited to specific regions.

Are Credit Unions Actually Safer?

Both banks and credit unions are regulated and federally insured, making them equally secure in a financial crash. However, credit unions may feel safer to some people for the following reasons:

Member Focus:

As nonprofit, member-owned institutions, credit unions may prioritize members' best interests, often focusing on financial stability and avoiding risky investments.

  
Personalized Service: 

Credit unions often cater to specific communities, which allows them to provide tailored products and prioritize customer service, contributing to a sense of security and stability.

  
Lower Borrowing Costs:

Credit unions typically offer lower loan rates, which can be beneficial in economic downturns.

Failure Rates: 

Studies indicate that banks have a slightly higher failure rate than credit unions. For example, following the Great Recession, over 400 banks failed compared to around 100 credit unions. In 2023, five banks failed, while three credit unions merged or closed.

Paraphrasing text from "Yahoo!Finance" all rights reserved by the original author.