Credit Union vs. Commercial Bank CDs: Key Differences Explained

While credit union CDs and commercial bank CDs are more similar than not, key differences include some terminology, interest rates, and availability. The best CD rates may come from either credit unions or bank. If you want the highest possible APY you can safely choose either one, as long as the credit union is NCUA-insured or the bank is FDIC-insured.

Overview of Credit Union CDs vs. Bank CDs

The highest CD rates on any given day may be found at either credit unions or banks, although credit unions tend to have better rates, on average, than banks. Our daily rankings of the best CD rates usually feature a mix of both.

However, banks offer certificates of deposit to anyone who lives in their area of coverage (some are regional and some are nationwide). You don't need to already bank at the institution. Credit unions may only offer CDs to members and may also use different words to describe CDs (like "share certificates") and interest paid (like "dividends").

Both credit union and bank CDs can be insured for up to $250,000, although by different entities. Banks may be insured by the Federal Deposit Insurance Corporation (FDIC), and credit unions may be insured by the National Credit Union Administration (NCUA).

Other than these differences, most certificates of deposit work in the same way. When you put your money into a traditional CD, you commit to leaving the cash in the account for a set period.

In exchange, the issuer pays a fixed interest rate, which is often higher than standard savings accounts. Taking money out before the end of the CD's term could lead to an early withdrawal penalty—sometimes a substantial one.

Understanding Credit Union CDs

Credit unions may offer better dividends or interest rates on CDs than banks.

Share certificates and CDs at federally insured credit unions are covered by the National Credit Union Administration. Congress created the National Credit Union Share Insurance Fund to insure credit union member’s deposits up to the $250,000 federal limit.

Finally, credit union CDs may only be available to credit union members. Membership requirements vary by credit union; you may qualify by being employed in a certain type of job, being a member of a certain group, living in a certain geographic location, or being related to another member.

However, some credit unions have a wide field of membership with easy ways to join, such as donating to a specific nonprofit organization.

A Closer Look at Commercial Bank CDs

Commercial banks pay interest on their certificates of deposit. CD rates, on average, are lower at commercial banks than credit unions.

Bank CDs are federally insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) against bank failure. Congress created the FDIC to help maintain stability and boost public confidence in the nation's financial system.

Unlike credit unions, banks may offer CDs to just about anyone. You typically don't have to qualify in some special way to sign up for a CD account beyond living in the eligible area (many are available nationwide) and providing the required ID.

Frequently Asked Questions (FAQs)

The Bottom Line

A typical certificate of deposit works in much the same way whether it is issued by a bank or a credit union. Choosing between the two types of financial institutions is largely a matter of personal preference and whether you qualify for a credit union's membership, although it's wisest to shop around for a competitive interest rate and compare fees. See our daily ranking of the best CD rates in a variety of terms to find a good home for your investment.