Credit Unions and Banks: what’s the difference?
Last reviewed May 2026
A credit union is a member-owned, not-for-profit cooperative. A bank is shareholder-owned and profit-driven. Both offer savings and loans, both are regulated by the Financial Conduct Authority (FCA), and both protect your money up to £120,000 under the Financial Services Compensation Scheme (FSCS).
When it comes to borrowing and saving, the first place many of us think of is a high street bank. However, there are other institutions that offer the same products and in some cases, better terms. Credit unions are one option you may not have considered.
Credit unions and banks both offer savings accounts and loans, but there are some important differences between the two. Understanding those differences could help you make a better financial decision for you.
What are the main differences between a credit union and a bank?
| Credit union | Bank | |
|---|---|---|
| Ownership | Member-owned, not-for-profit | Shareholder-owned |
| Who can join | Common bond required | Anyone (most accounts) |
| Savings return | Annual dividend (not guarenteed). Some credit unions may also have savings product which pays interest | Fixed or variable interest rate |
| Loan rate cap | 42.6% APR maximum in England, Scotland and Wales.12.68% APR in Northern Ireland | No cap. Set by lender and often influenced by the Bank of England |
| Hidden charges | None on most products | Varies by lender |
| Free loan insurance | Often included | Rarely included |
| FSCS protection | Yes, up to £120,000 | Yes, up to £120,000 |
Here's a closer look at what each of those differences actually mean
What is the difference in ownership between a credit union and a bank?
The biggest difference between credit unions and traditional banks is their ownership structure. Credit unions are owned by and run for the benefit of their members, whilst traditional banks are owned by shareholders. That means credit unions are not profit-driven, they focus on providing members with the best possible financial services and support
Who can join a credit union?
Credit unions typically have more membership requirements than traditional banks. Most ask that members share a 'common bond' such as living or working in the same local area. Traditional banks generally allow anyone to open an account regardless of where they live.
What products and services do credit unions offer?
Credit unions and traditional banks offer a similar range of products and services, including savings accounts and loans. However, credit unions usually offer lower interest rates on loans than traditional banks.
Credit union savings accounts - sometimes referred to as 'shares' - pay annual dividends at a rate agreed by the elected board members. Some credit unions may also have savings products that offer interest, though this differs between credit unions. All members are welcome to attend their credit union's Annual General Meeting (AGM) to vote on decisions, giving them a real say in how it's run.
How do credit unions support members applying for loans?
When applying for a loan at either a credit union or a bank, all applicants go through an affordability check based on their credit score profile. At traditional banks, applicants will likely be rejected if their credit score is deemed too low or risky, and may not be told the exact reasons why.
At credit unions, many use innovative decision engine software that supports staff in making a more informed, personal assessment. If a credit union can't lend the full amount requested, a staff member will contact the applicant to offer a lower amount. Or if they cannot lend at all based on affordability, will discuss the reasons and explore other alternatives.
Are credit union loan interest rates lower than banks?
At traditional banks, interest rates are determined by the Bank of England and can fluctuate. Often the loan interest rates advertised are representative, meaning the actual rate offered to you may be higher. Many banks also calculate interest on the original amount borrowed, meaning the interest amount remains the same throughout the life of the loan.
Credit union loan interest rates are capped by law. In England, Scotland, and Wales the cap is 3% per month (42.6% APR). In Northern Ireland the cap is 1% per month (12.68% APR). Credit unions calculate interest on the declining balance. Which means that as you repay your loan, the amount of interest you pay reduces over time. This means you pay less interest overall compared to a typical bank loan. With credit unions, there are also no hidden charges or early repayment fees. Additionally, loans can be repaid in a number of ways including directly from a member's salary through payroll deduction or through child benefit payments.
Do credit unions include life insurance on loans?
Many credit unions offer free life insurance and loan protection on their products, giving members real peace of mind. Specific eligibility requirements and terms will differ between credit unions.
How are credit unions involved in their communities?
As credit unions are owned and operated by their members, profits are put back into the credit union and the wider community. This includes donating to local charities, sponsoring community events, offering financial education programmes, or creating places and spaces for the community to use.
Are credit unions as safe as banks?
Yes. Both credit unions and banks are regulated by the Financial Conduct Authority. Through the Financial Services Compensation Scheme (FSCS), savings at both credit unions and banks are protected up to £120,000.
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