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Credit Union CDs vs. Commercial Bank CDs: What's the Difference?

Where to buy a certificate of deposit is mostly a matter of personal preference

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Updated July 17, 2024
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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.

Key Takeaways

  • A typical certificate of deposit (CD) often works the same whether it's issued by a credit union or a bank.
  • Credit union and bank CDs may be insured for up to $250,000 in the event of financial institution failure.
  • Credit union CDs may be called share certificates, and they may pay higher dividends (interest) on average compared to commercial bank CDs.
  • Commercial bank CDs may be available to a broader customer base without member qualification requirements.

Credit Union CDs vs. Bank CDs: An Overview

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.

  Credit Union CDs Commercial Bank CDs
Name CDs, Share Certificates CDs
Pays Dividends Interest
Interest Rates Vary by term Vary by term
CDs Insured By NCUA FDIC
CD Availability  Members Public
Membership Fee Sometimes No

Credit Union CDs

Credit unions may offer better dividends or interest rates on CDs than banks. A comparison of bank and CD rates in March 2024 found that national average interest rates were higher at credit unions than banks for $10,000 in CDs ranging from three months to five years.

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.

Some credit unions require new members to pay a fee for membership or deposit a small amount into a savings account when joining.

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.

CDs are among the safest investments available because banks and credit unions guarantee the interest rate for the full term. Investopedia's list of the best CD rates is based on over 200 banks and credit unions that accept customers nationwide.

Frequently Asked Questions (FAQs)

Which Is Better: A Commercial Bank or a Credit Union?

The best financial institution for you when deciding between a credit union and a bank depends on your personal preferences and whether you qualify for credit union membership. Every bank and credit union provides different products and services, with different terms, rates, and fees, so you have many options to choose from.

Are Bank and Credit Union CDs Safe?

Yes, bank and credit union CDs are safe if they're federally insured. When you open a CD with an FDIC- or NCUA-insured institution, up to $250,000 of your money at that institution is insured by the U.S. government.

What Is the Best CD?

The best CD for you may depend on how long you can afford to deposit your money without accessing it. CDs are available in terms lasting from a few months to a number of years. You could face substantial early withdrawal penalties if you withdraw money prematurely. Because CDs are otherwise fairly similar, you can shop around for a CD with the best interest rate for the particular term you're interested in. But make sure that it is covered by either FDIC or NCUA insurance.

What Terms Are CDs Available for?

You can buy a CD that matures in as little as a month or as long as 10 years or more. Some common terms you're likely to see at banks and credit unions today are three months, six months, one year, two years, and five years. Longer CD terms may pay better interest rates, but this isn't always true. However, with longer terms your money will be inaccessible for a longer period of time (unless you pay a penalty to withdraw it), and it will also be subject to greater inflation risk.

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.

Article Sources
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  1. National Credit Union Administration. "Credit Union and Bank Rates 2024 Q1."

  2. National Credit Union Administration. “What Is a Credit Union?.”

  3. National Credit Union Administration. "Share Insurance Fund Overview."

  4. FDIC. "Deposit Insurance."

  5. Office of the Comptroller of the Currency. "What Are the Penalties for Withdrawing Money Early from a Certificate of Deposit (CD)?"

  6. Financial Industry Regulatory Authority. "Certificates of Deposit (CDs)."

  7. Mycreditunion.gov. "Find, Join or Start a Credit Union."

  8. FDIC. "About."

  9. Helpwithmybank.gov. "I Want to Open a New Account. What Type(s) of Identification Do I Have to Present to the Bank?"

  10. U.S. Department of Securities and Exchange. "Certificates of Deposit (CDs)."

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