When it’s time to decide whether to conduct your financial business at a bank or a credit union, you’ll need to make some decisions about your priorities. Both banks and credit unions offer valuable services, but there are some significant advantages and disadvantages to handling your finances at each type of institution.

Geography may play an essential role in your choice, as well. Most small communities have a bank in town, but they may not have a credit union. If banking in person is important to you and your home is in a rural area, your choices may be limited.

Before you can make a decision about whether a bank or credit union would better serve your needs, you need to understand the key differences between the two.

You may have heard that credit unions have more favorable fee structures for consumers. The customer service experience may also differ between a bank and a credit union. The main difference between banks and credit unions is that banks are for-profit and credit unions are non-profit. Credit union fees are typically lower because their goal is to serve their members, while a bank’s target is to create profit. According to the Credit Union National Association (CUNA), New York credit unions provided $178 per household in financial benefits to their members between March 2017 and March 2018.

How credit unions work

Members technically own the credit union. Of course, you have to qualify for membership by meeting the credit union’s criteria. This may mean you’ll need to be an employee of a specific company, or related to an employee of that company. Some credit union memberships are only available to people living in a particular geographical area. Others serve only specific community groups.

Since credit unions are not-for-profit, they provide financial services to members at reduced fees. Most credit unions do not charge in-network ATM fees, have lower overdraft fees than banks, and they have lower loan origination fees. Members are also owners; they have the opportunity to vote for the board members responsible for setting policies and prices.

If your credit union is insured with the National Credit Union Administration (NCUA), your funds are guaranteed up to $250,000. This is the same amount of money guaranteed at banks by the FDIC.

How banks work

Like credit unions, banks pay interest on money you deposit into your account. They also charge interest on money they lend account holders. The bank keeps the difference between those two amounts. They also make money by charging overdraft, loan origination, and account maintenance fees.

Anyone can open a bank account if they qualify. Both banks and credit unions may check credit scores and look closely at your history with other banks and credit unions to determine whether you can open an account.

Banks often have a more extensive network of branches and ATMs, making it easier to stay with the same one if you move. Larger banks typically have better technology and may offer more extensive financial services than local credit unions.

How credit affects your experience at a bank or credit union

Some banks and credit unions impose strict limitations when it comes to credit scores. You may need to qualify for an account by undergoing a credit check. Before applying for an account, ask if there is a minimum credit score required. If you have credit challenges, haven’t yet built up a credit history, or are recovering from financial setbacks, you can save some time by choosing a bank or credit union that does not have a minimum FICO credit score requirement to open an account.

If your credit scores are in the fair to low range and you hope to qualify for a mortgage, you may have better luck at a credit union than you would at a bank. Credit unions typically have more lenient policies when it’s time to qualify for a mortgage. They may be more likely to consider loans on a case-by-case basis. Some credit unions offer free financial education and credit building programs to help you get your finances in order. They may have special credit products, like credit cards and credit-builder loans to help you raise your scores by demonstrating responsible financial behavior.

Choosing an account

There are several types of basic accounts available at both credit unions and banks. Most people decide to open a checking account, and savings account to start their relationship with their bank or credit union. IT’s best to start with a low or no-fee account with no minimum balance requirements and no monthly fees. Nearly every bank and credit union in the U.S. have an account that doesn’t impose fees for regular use.

Checking account or share draft account

Banks call them checking accounts and credit unions call them share draft accounts. This type of account is for everyday use. You can choose to have some or all of your paycheck automatically deposited, participate in automatic bill pay to streamline your finances and write checks against the balance. This account also typically comes with a debit card with a Visa or Mastercard logo.

You may pay a monthly maintenance fee of $2.99 to $14.95. This is typically waived with paperless statements and automatic deposit of a payroll check or by meeting minimum average balance requirements.

For example, U.S. Bank charges a $6.95 monthly fee unless there are at least $500 in direct deposits or an average account balance of $1,500 during the prior month. PNC does not charge a monthly fee. TD Bank charges a $2.99 monthly fee with online statements. There’s a $1 monthly surcharge for paper statements.

So, if you choose U.S. Bank, you’ll pay $83.40 per year to have a checking account unless you have your paycheck automatically deposited and it’s over $500 each month. If you choose to open a checking account with TD Bank, you’ll pay $35.88 per year. With PNC, you don’t have to worry about paying monthly maintenance fees just to have a checking account.

If you want a savings account, you may also have to pay fees, depending on the bank or credit union. Chase Savings, PNC Regular Savings, TD Simple Savings, Bank of America Regular Savings, and Wells Fargo Way2Save Savings accounts all have $5 per month maintenance fees, waived with a minimum daily balance of $300. Although banks claim that the minimum balance requirements are just an incentive to keep money in your savings account, many credit unions offer similar accounts without the associated fees or required minimum balances.

Understanding overdraft protection

The name sounds good so it may seem smart to opt in when your bank or credit union asks if you want overdraft protection. When there aren’t enough funds in your account to cover a transaction, if you have overdraft protection, the bank pays. Then, they asses a charge to your account. If you keep track of your account balance, overdraft protection isn’t necessary. Banks and credit unions typically offer an app that will help you check your balance in real time using your smartphone. Insecure about the purchase you are about to make? Check your balance while you wait in line.

Saying “no” to overdraft protection and taking responsibility for your account balance could save you hundreds of dollars. Ask your financial institution if you can link another account to your checking account for an automatic transfer of funds instead of using their overdraft protection. There may be a fee, but it’s likely to be much lower than most overdraft fees. Be sure to sign up for alerts via the bank or credit union’s app to let you know when the balance in your checking account is low, as well.

At a credit union, you may have access to specialized savings accounts designed to help you reach personal financial goals or save for seasonal expenses. The Christmas Club account is one popular option. The customer decides how much money they want to deposit into the account and at what interval throughout the year.

For example, someone who gets paid on the first and the 15th of the month may decide to have $30 taken out of their checking account on those days and deposited into their Christmas Club account. A few weeks before the Christmas holiday, the $720 they saved throughout the year would automatically transfer back into their checking account to help take the edge off extra expenses during this time of year.

Some credit unions offer specialized savings accounts that limit withdrawals to encourage the account owner to reach their goal. For example, if you want to save $4,000 for a family vacation over the next twelve months, you could set aside $334 each month by depositing $167 automatically out of each paycheck into this account.

Kids’ savings accounts

While credit unions and banks both offer savings accounts for kids, there’s such a variety of accounts that it pays to research this option if you have kids that may want their own account.

Credit unions typically have more robust financial products for children. They may even offer step-up programs for older kids who are ready for their first debit card or earning money babysitting or mowing lawns. Look into programs that incentivize kids to save. Make sure to choose a no-fee account and understand the terms of the account. Teenagers should start with a debit card that denies a transaction instead of paying it and then charging a $25-$40 overdraft fee.

Find a financial institution that fits your life

If you plan to start a business, have a side hustle, or freelance, find out if you have any additional financial services available. Some credit unions offer small business perks like tax assistance or fee-free business accounts for those just starting out on their entrepreneurial journey. They may be able to connect you with valuable resources in the community, as well.

When you find your ideal credit union or bank, make sure that their savings account pays a decent amount of interest. If they pay lower interest rates, that’s not a deal breaker. You can quickly and easily open an online savings account with a higher interest rate.

Online banks don’t have to maintain brick-and-mortar locations so they can afford to attract new customers with higher interest rates on savings accounts. For example, Marcus by Goldman Sachs has some of the highest interest rates on savings accounts. They do not charge monthly fees and require just $1 to open and maintain the account. HSCB also pays a higher interest rate on savings. They offer financial tools like income tracking, email alerts, and custom savings goals. $1 will open an account, and there are no minimum balance requirements. Ally Bank sets itself apart by offering real-time chat in its popular and accessible app. It has some of the best interest rates in the marketplace, and there’s no minimum deposit requirement or monthly fee. Keep in mind that when you use a savings account at a bank different from your local one, it may take a few days to see transferred funds show up in your checking account.

Check the online reputation of a financial institution before opening an account

Consumer Reports, Yelp, and the Better Business Bureau are great places to check for customer reviews. How the bank or credit union treats their account holders is an important factor, so spend some time reading reviews from individuals before you make a final choice.

Before you choose a bank or credit union and decide which type of accounts are right for your financial situation, research the options carefully. Read the fine print and understand the fees so you don’t end up losing money when you accidentally use the wrong ATM machine or make too many transfers on a limited account.

It’s possible to experience the best of both worlds by opening accounts at both a bank and a credit union. So long as you can keep your finances organized and avoid high fees, the accounts you choose will work to your advantage.