Credit unions and banks offer similar accounts and loans, but they are different kinds of institution. The distinction is ownership, and most of the practical differences follow from it.
Members are owners, not customers
Opening an account at a credit union means buying a small share in a cooperative, which carries voting rights in board elections regardless of account size.
There are no outside shareholders expecting a return, so earnings are retained as capital or returned to members through rates and reduced fees.
The board is generally made up of volunteer members rather than paid directors, which shapes governance in ways that are visible in how conservatively many institutions operate.
Membership is defined and limited
A credit union serves a field of membership defined in its charter, historically an employer, a profession, a religious body or a geographic community.
Those definitions have broadened over time, and many now serve wide areas, but the requirement itself remains and is why joining sometimes involves an association.
The limit exists because the cooperative model assumes a common bond among members, and it is one of the long-running points of dispute with the banking industry.
The tax and regulatory treatment differs
Credit unions are not-for-profit cooperatives and are exempt from federal income tax on their earnings, which is a persistent subject of legislative argument.
They are supervised by a different federal regulator than banks, and federally insured deposits are covered by a separate insurance fund rather than the one covering banks.
Coverage limits are set in law and the mechanics are comparable, but they are distinct systems, and knowing which applies to an account matters if an institution fails.
Scale creates practical tradeoffs
Many credit unions are small, which limits branch networks, technology budgets and the range of commercial products they can offer.
Shared branching and cooperative networks partly offset this, letting members transact at other participating institutions and use large shared machine networks.
Larger credit unions increasingly resemble banks in product range, which is precisely what makes the tax and charter distinction contested.
What the structure does not guarantee
Member ownership does not automatically produce better pricing on every product, and comparison across institutions still matters for any given account or loan.
Nor does it change the underlying credit assessment, since lending standards respond to risk and funding costs the same way anywhere.
The structural difference is about who receives the residual earnings and who elects the board, which is a governance fact rather than a promise about rates.