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Credit Union vs. Bank CDs: Five Differences

If you're trying to decide between a credit union CD and a bank CD, understanding the differences can help you narrow your search to find the best account for your savings strategy.

Lora Shinn
Contributor
Published Apr 19, 2024 in: Budgeting

8 minutes

On average, credit unions offer higher interest rates than banks on certificates of deposit, according to the National Credit Union Administration — but you might have to meet membership requirements and join a credit union before you can open one.

Credit unions and banks also sometimes use different language to describe certain aspects of their CDs and insure your funds differently.

Outside of these differences, though, credit union and bank CDs work similarly: You deposit money and keep it in the CD for the whole term. In return your financial institution pays a set interest rate. If you withdraw your money early, you will likely pay a penalty.

"Functionally, there really isn't a difference between a credit union CD and a bank CD," said Scott Smith, BECU's director of deposit product management with 22 years of service in the credit union industry. "Most differences are at the institution level — one credit union may offer a CD that another does not."

Here are the main differences you need to know:

Credit Union CD vs. Bank CD
	Credit Union CD	Bank CD
Factors That Influence Rates	Amount deposited, term, meeting membership requirements	Amount deposited, term
Insurance Organization	NCUA	FDIC
Membership Requirements	Yes	No
Interest Paid*	Higher on average	Lower on average

1. Higher Rates

Average CD interest rates at credit unions nationwide are almost an entire percentage point higher than bank CD rates at the time of this writing. In general, credit unions offer better savings account rates than banks. Of course, rates differ among credit unions and among banks.

According to the NCUA, average credit union CD interest rates are higher than bank CD rates for a $10,000 CD deposit. This is true for every term, from three-month CDs to five-year CDs.

Let's look at how much a deposit grows at different interest rates. We'll use the national average rates from the fourth quarter of 2023 for this example**. At that time, the average interest rate on a 12-month CD was 3.20% at credit unions and 2.23% at banks.

Example: 12-Month CD Earnings**
	Interest Rate	Total Interest Earned	Principal Plus Interest
$10,000 Deposit	2.23%	$455.66	$10,455.66
$10,000 Deposit	3.20%	$660.02	$10,660.02

Your returns will vary depending on your deposit amount, CD type, rate, term and the financial institution.

CD rates are typically higher than those in a regular savings account, interest-earning savings account or a money market account.

2. Insurance Organizations

If you open a CD at a federally insured financial institution, it will be covered up to $250,000 combined with all your accounts owned solely by you. The Federal Deposit Insurance Corporation insures bank accounts.

The National Credit Union Share Insurance Fund, administered by the National Credit Union Administration, insures credit union accounts. The $250,000 coverage limit for both FDIC and NCUA applies per deposit account, per ownership category, per institution.

Look for official NCUA or FDIC insurance signage in the physical credit union or bank location or on its website. You can also look up the credit union using the NCUA Credit Union Locator tool.

This insurance covers all types of CDs, including IRA account CDs at insured financial institutions. However, insurance doesn't cover investment accounts.

You might spread your CD accounts over several credit unions if you have more than $250,000 to deposit. The NCUA's Share Insurance Estimator can help determine whether your CDs are fully covered.

3. Terminology

A bank typically calls these accounts certificates of deposit or CDs. CDs rely on time — such as six months or 12 months or several years. The CD is said to have matured when it reaches the end of its term.

At that point, you can roll it over to another CD with the same term at the interest rate in effect on the maturity date. At the end of your CDs term, you can also move money into another CD with a different term or withdraw your funds. At BECU, your CD automatically renews for the same term unless you select a different option.

BECU also refers to these accounts as CDs, but some credit unions CDs may refer to them as share certificates.

The percentage-based increase on your deposit is called interest at most banks and at BECU. Credit unions that refer to CDs as share certificates also refer to this as a dividend rate.

4. Membership Requirements

Banks may allow almost anyone to open a CD if the person meets the minimum requirements to open an account.

However, credit unions may have limitations on who can join as members and open a CD.

Every credit union has a "field of membership" that defines who may join.

"Some credit unions have a national field of membership, and some don't," Smith said.

National credit unions typically set the field of membership among one or more of these elements:

Occupation: Members work for the same employer or in the same career.
Association: Members belong to a particular labor union, group or church.
Community: Members live, work, worship or attend school in the same geographic area.

At BECU, for example, you are eligible for membership if you live or work in Washington. But if you live in Oregon or Idaho, you can join only if you live in specific counties. You are also eligible for membership, including opening a CD, if you meet other eligibility requirements, like working for Boeing, BECU or another credit union, among other criteria.

Other credit unions may restrict membership to those who work for a specific employer. Some may allow you to join if you donate and become a member of an affiliated organization.

5. Member-Focused Opportunities

Both credit unions and banks may offer higher rates if you meet some requirements, including choosing a specific term or depositing a specific CD minimum, such as $1,000 or more.

However, a credit union might also award higher rates to members who fulfill certain conditions. For example, BECU offers a Member Advantage interest rate boost on CDs.

With a bank, typically, you won't need to meet a membership requirement to receive the higher rate.

Credit Union CDs vs. Bank CDs: How To Compare

According to NCUA data, credit unions usually offer slightly higher rates than banks on average. Credit unions also emphasize "return to members," or great rates and few fees. However, each credit union or bank differs. Compare CD rates, how easy it is to open a CD account, and the ease of becoming a member.

"Look at the CD details of an institution, such as how the bank or credit union pays interest and what kind of penalties are charged based on the term you select," Smith suggested.

If you see two great rates — one at a credit union and another at a bank — investigate:

Whether you meet eligibility requirements.
Any early CD withdrawal penalty if you need your funds earlier than expected.
Whether the credit union or bank is insured by FDIC or NCUA.
Any conditions you need to meet to earn a higher CD rate, if available.
Requirements for CD renewals (rollovers) or special situations.
Ease of opening, maintaining and closing the CD account online.

Should I Open CDs At Different Credit Unions?

Putting your money into CDs in different credit unions can help if you're investing more than the NCUA-insured $250,000 limit. You might also want to take advantage of great rates at a credit union even if that's not your primary financial institution.

However, there's a certain amount of hassle in remembering where your CDs are located and various account numbers, logins and passwords. You'll also need to track when your CDs mature and plan your next steps. Managing a bundle of three-month CDs spread across 10 institutions could be time-consuming.

Would I Pay Taxes on Credit Union CDs?

Yes, the interest you earn on your CD may be taxable, but the credit union does not deduct the tax from your earnings. Instead, the credit union will send a 1099-INT by Jan. 31, with the total interest you earned. You must declare this amount on your annual tax return and may pay taxes on the interest. Speak with a tax professional for more details.

The Takeaway: Credit Union CDs vs. Bank CDs

You may see an amazing interest rate advertised on a credit union CD or share certificate. Thanks to technological advances, you may be able to open a great-rate CD in a different city or state. But don't get too excited about that rate until you find out whether you'll qualify for credit union membership. Likewise, review any early withdrawal penalties or extra fees that might get subtracted from your earnings, whether at a bank or credit union.