bank rates

Bank CD Vs. Credit Union CD


woman with a magnifying glassIf the yield from two competing institutions is similar, is there any reason to choose a credit union CD over a bank CD?

It depends.

Here are 4 questions to ask before making your decision.

Question 1. What will joining a credit union cost me?

Perhaps the most noticeable difference between a bank and a credit union is that you must meet some eligibility requirement, such as living in the area, working for a particular company or being affiliated with a particular group, to join a credit union.

If you don’t meet one of the eligibility requirements, you can sometimes join an affiliated organization for a small fee, typically $15 to $35.

On the whole, credit unions tend to offer higher CD rates than banks, but if you have to pay to join, the rate needs to more than compensate for the fee.

We say “more than compensate” because maintaining membership in a credit union requires you to jump through a hoop that banks don’t.

A credit union requires you to open a share account before you can open any other type of account, including a CD.

A share account is similar to a savings account, and the credit union will require you to keep a small sum, usually $5 to $25, in this account at all times.

This sum represents your share of ownership in the credit union. Unlike banks, credit unions are nonprofit institutions owned by their members.

Question 2. Is my money safe?

Banks offer FDIC insurance of up to $250,000 per depositor per bank (more if you’re setting up payable-on-death accounts).

The federal credit union equivalent of FDIC insurance is National Credit Union Administration insurance, provided by the National Credit Union Share Insurance Fund.

NCUA insurance also covers your deposits up to $250,000 and is also backed by the U.S. government.

Some state-chartered credit unions are privately insured, which means another company is backing up your deposits. For many savers, this type of insurance offers assurance their money is safe; for others, it isn’t as good as a government guarantee.

You can tell which form of insurance a credit union has by looking at the bottom of its website. If it doesn’t have an NCUA designation, it should have a private insurance logo.

Highest CD Rates Roundup

Start your comparison of the very best certificates of deposit with a comprehensive list of the highest CD rates from credit unions and local banks. Find local offers that pay as much as 3%.

Question 3. Am I comparing the right numbers?

If the bank you’re investigating offers a much lower rate than the credit union you’ve discovered, the answer to where you should put your money might be self-evident.

But first you need to make sure you’re comparing apples to apples.

When you’re comparing a bank’s CD rate to a credit union’s CD rate, look at the credit union’s APY, not the dividend rate. The annual percentage yield tells you how much you’ll earn based on the dividend rate and compounding frequency.

And, yes, credit unions technically pay dividends, not interest. They’re called dividends because they’re paid to owners (that’s anyone with a credit union account).

For CD investors, the distinction is irrelevant.

Credit union CD dividends usually compound daily and get paid monthly, just like bank CD interest usually does.

And for tax purposes, the dividends you earn on a credit union certificate are treated just like the interest you earn on a bank CD.

Question 4. Are there other points of comparison?

Here are some other questions to ask any time you’re choosing between two CDs at two different institutions, regardless of whether those institutions are banks or credit unions:

Which CD has the more favorable early withdrawal penalty policy?

If you like to bank online, how robust is the institution’s website?

If you’re just going to deposit your funds and leave the CD alone until it matures, these differences aren’t that important.

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The other possible benefits of choosing a credit union over a bank for your CD are largely psychological or anecdotal.

Unlike banks, credit unions are nonprofit institutions, which might give you the warm fuzzies.

And many credit union customers will tell you their credit union offers superior customer service and lower fees, and there are surveys that back them up.

But you’d need to know how the customer service and fees at the specific institutions you’re considering compare; broad generalizations aren’t helpful.

If one of the CDs you’re considering comes from a local institution, you might give it the edge so you can walk into a branch if you need help.

But many geographically distant credit unions make it possible to get local, in-person service thanks to shared branching.

For most savers, the decision will come down to which CD offers the best rate.


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Comments (2)
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  1. derek said:
    on June 5th at 10:53 am

    “Credit union CD dividends usually compound daily and get paid monthly, just like bank CD interest usually does.”

    I don’t think dividends and interest are COMPOUNDED daily.

    Dividends/interest are CALCULATED daily based on the balance at the end of that day. But they are not yet added to the available balance. Instead, they ACCRUE until they are CREDITED to the account [usually monthly].

    From this date onwards, they have been COMPOUNDED, because they are now included in the actual daily balance.

    If an account is closed before its dividend/interest has been credited, some institutions include the accrued interest in their closing payment, while others do not.

  2. Annie August said:
    on June 12th at 12:27 pm

    I honestly prefer a credit union over big banks. For me, a credit union is a lot easier to deal with compared to banks and the folks at Oak Trust in Plainfield, Illinois just make the experience even better. Check out their website at http://www.oaktrust.com