Banks vs. credit unions: Which option is best for your savings?

With the Federal Reserve continuing to hold off on interest rate cuts, many savers have been able to enjoy high returns just by keeping money in certain deposit accounts, like checking accounts, savings accounts and money market accounts. For example, you can find some high-yield savings accounts or certificates of deposit (CDs) paying above 5% annual interest right now.

However, not all accounts — nor the financial institutions that offer them — hold the same appeal for all savers. Not only can there be significant differences when it comes to interest rates, but different banks and credit unions can offer different features and benefits when it comes to things like fees and customer service.

One option isn't necessarily better than the other across the board, though. Rather, the choice between a bank or a credit union typically depends on your financial circumstances and personal preferences. Here are some scenarios in which one might work better than the other for certain savers.

Start comparing your options and find out the top savings rates available to you now.

When banks might be the better option for your savings

Some of the top reasons for choosing a bank over a credit union for your savings include:

Familiarity and convenience

Those who already have a relationship with a bank will often find it's easier to open a savings account or CD with that same bank, says Julia M. Carlson, founder of Financial Freedom Wealth Management Group.

Certain banks, such as national brands, also might appeal to some savers who want to be able to access branches across the country.

"Some consumers prefer the convenience of physical locations and may choose to use a bank, as they usually have more locations than a credit union," says Shavon Roman, personal finance expert at Heal Plan Invest.

Learn more about today's top savings options online here.

Competitive rates

Even banks without physical locations will sometimes hold advantages over credit unions. While credit union rates can be just as competitive, if not more so, than many banks, they generally have membership requirements based on factors like your location or employer. And that can limit your access. 

In contrast, it might be easier to find and use an online bank.

"If you are not concerned with a local presence or don't need a local service representative, an online bank will allow you to maximize your yields on savings accounts and CDs with FDIC insurance. Most accounts can be linked to a checking account for easy access and transfers," says Todd Youngdahl, senior vice president at Wealth Enhancement Group.

Advanced technology

Technology can also play a role in your decision. For example, you may decide you want a more modern mobile app and digital banking offerings, which would help to determine which option is best.

"On average, traditional banks have more advanced technology, a large menu of product and service offerings, and an increased number of ATMs, making access to money more convenient," says Dr. Preston D. Cherry, founder and CEO at Concurrent Financial Planning.

When credit unions might be the better option for your savings

While banks are familiar to many consumers, credit unions could generally be a better option for savers due to factors such as the following:

High yields

While you can find competitive interest rates at many banks, such as those that offer online-only high-yield savings accounts, credit unions as a whole tend to have higher yields comparatively.

"On average, credit unions pay higher interest rates on savings deposits than traditional banks. Credit unions are structured as non-profit institutions, allowing the reinvestment of profits back to members, including higher interest rates on high-yield savings and CDs," says Dr. Cherry.

Still, it's important to compare rates to see what your specific options are.

Access to other products

The non-profit status of credit unions also means they can typically charge members less for things, like loans. So, having a savings account at a credit union could lead to paying less for a mortgage loan or auto loan.

"You may want to have a savings account at a credit union to qualify for other benefits with the credit union, such as low auto loan rates," says Youngdahl.

Community ties

Some people may also choose to put their savings into credit unions due to the community ties that these financial institutions typically have.

"Credit unions can be more community focused and create that small town support feeling. I have found loyalty to community, school, county, or work that offers credit union options is a big draw with their customers," says Carlson.

As non-profits, credit unions also often reinvest in programs that help members improve their financial knowledge.

"Credit unions can have robust personal financial education resources, specifically financial wellness programs," says Roman.

The bottom line

Both banks and credit unions have their advantages, though which makes more sense generally depends on your perspective. As you start to look into your options, it can help to compare specific interest rates, fees and other features that may impact your decision. 

And, don't feel like it has to come down to choosing one over the other. "Commonly, a combination approach to traditional and credit union banking fits, with one being the primary role and the other being supportive, depending on your life financial needs," says Dr. Cherry.