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Community bank vs. credit union: Key similarities and differences
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Big banks are no doubt convenient, offering high-tech online platforms and widespread branch networks. But in an increasingly digital, automated world, you may crave a banking experience with a localized focus and more human connection. If this sounds like you, a community bank or credit union may be a better fit.

Community banks and credit unions have a lot in common, specifically their personalized approach to banking. But they also have major differences when it comes to their structure. These differences can affect your experience as a customer and the features and perks you enjoy.

If you’re interested in becoming a customer at a community bank or credit union, learn about what makes each of these institutions unique before deciding which way to go.

What is a community bank?

In simple terms, a community bank is a bank that focuses on providing financial products and services, such as deposit accounts and loans, to customers in its local community. This generally means deposits come from and loans are made to local customers and businesses. It also means these banks have specialized knowledge of the communities they serve, allowing them to meet the unique needs of their customers.

Community banks provide many of the same products and services as larger banks, including checking accounts, savings accounts, certificates of deposit, loans, business banking, and more. However, they may not have as wide a service suite as larger banks. Similarly, the branch networks for community banks tend to be much smaller than for national banks.

Because of a narrower focus on a smaller customer pool, community banks can offer more personalized customer service. They may also be more flexible when it comes to approving loans — prioritizing relationships first — while bigger banks may adhere to strict financial requirements.

Whether there’s a cut-and-dry definition of a community bank depends on who you ask. The Federal Reserve defines community banks as banking institutions with less than $10 billion in assets, though other definitions focus less on numbers and more on values.

Read more: What is a community bank?

What is a credit union?

Credit unions offer similar products and services as banks but operate as nonprofit financial cooperatives. Members can open checking and savings accounts, take out loans, get mortgages, and access wealth management — but their relationship to the institution differs from that between banks and their customers.

Credit unions are owned by their members and managed by a member-elected board. In order to take advantage of a credit union’s products and services, you must become a member and open a share account — often with a $5 deposit — which represents your ownership in the organization.

You must meet specific eligibility requirements to become a member of a credit union. Often, credit unions serve a specific geographic area, industry, employer, or group, limiting membership to those who meet set criteria. Because of this, credit unions can focus on serving the unique needs of their members, whether that means catering to veterans, teachers, or residents of a specific community, for example. Additionally, credit unions often emphasize customer service and giving back to the community.

Due to their nonprofit structure, credit unions tend to pass on savings to their members more often than banks. These savings may come in the form of higher savings account interest rates, lower account fees, or lower loan rates.

Read more: What is a credit union, and how do you join one?

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Community bank vs. credit union: Key differences

Community banks and credit unions have a lot in common but differ in several key ways. Below are some of the biggest differences between community banks and credit unions:

  • Eligibility: Anyone can join a community bank and open an account, but you have to become a member before opening an account at a credit union. Membership eligibility typically involves living in a specific area, working in a specific industry, or being part of a specific group.

  • Structure: Banks operate as for-profit institutions, and customers don’t have direct influence over company decisions. Credit unions, however, are nonprofit organizations. Members are partial owners and can vote on organizational decisions.

  • Insurance: Deposits at both banks and credit unions are insured up to $250,000 per depositor, per institution, per ownership category. But different entities insure each type of institution: The Federal Deposit Insurance Corporation (FDIC) insures banks, while the National Credit Union Administration (NCUA) insures credit unions.

  • Fees and rates: Banks tend to charge higher fees compared to credit unions. They may also have higher loan interest rates and lower savings interest rates. Credit unions can afford to offer more attractive fees and rates due to their nonprofit structure, which allows them to pass savings on to members.

  • Accessibility: Community banks may have more branch locations and bigger ATM networks compared to credit unions. On the other hand, some credit unions belong to the Co-op shared network, which allows members to access their accounts at any partner bank branch or ATM.

  • Technology: Banks may be more technologically advanced compared to credit unions, offering more streamlined online banking and user-friendly mobile apps. But this isn’t always the case.

Read more: 7 credit unions anyone can join

Is a community bank or credit union right for you?

Whether a community bank or credit union is best for you depends on your goals, priorities, and what’s available where you live.

If you’re unsure which to choose, ask yourself the following questions:

  • Is your primary goal to reduce bank fees and earn more on deposits? If so, you might have better luck at a credit union.

  • Do you want a say in how your financial institution runs? If you want the ability to influence decisions at your financial institution, a credit union’s nonprofit structure will be a better fit.

  • Do you prioritize technology and mobile banking? Banks often — but not always — have more advanced technology compared to credit unions. If having the sleekest app and online banking platform is important to you, you may want to choose a community bank.

  • Does the bank or credit union offer all of the products and services you need? Banks and credit unions may offer the same products and services, but this can vary by institution. Additionally, some people prioritize keeping all of their financial accounts within a single bank or credit union, while others may not mind diversifying. If you want everything under one roof, choose whichever can offer what you need.

  • What’s accessible in your area? Community banks tend to have more branches compared to credit unions, though that’s not always the case. Additionally, some credit unions belong to a shared network that allows you to bank at any member branch, expanding your network of branches and ATMs across the country.

Read more: Are credit unions safer than banks?