Do Credit Unions Have Lower Interest Rates?

For individuals seeking financial services, a common question arises regarding whether credit unions consistently offer more favorable interest rates compared to traditional banks. This inquiry stems from the distinct operational models of these institutions, which can indeed influence the rates provided on both loans and deposit accounts. Understanding these differences can help consumers make informed decisions about where to manage their finances.

Comparing Interest Rates

Credit unions offer lower rates on loans and higher rates on savings across a range of financial products.

For instance, in the fourth quarter of 2023, the national average interest rate for a 36-month used car loan at a credit union was approximately 6.33%, while banks averaged 7.17%. More recently, in June 2025, the average 60-month new car loan rate from credit unions was 5.75%, significantly lower than the 7.49% average from banks.

Mortgage rates at credit unions are competitive. In the fourth quarter of 2024, the average rate on a 30-year fixed-rate mortgage from credit unions was 6.73%, slightly below the 6.84% offered by traditional banks. They also provide lower rates for 15-year fixed and 5/1 adjustable-rate mortgages.

Beyond auto and mortgage loans, credit unions offer lower interest rates on personal loans and credit cards. Credit card APRs can be 2-4% lower. Federal law places a usury ceiling on credit union loan rates, usually around 15%.

On the deposit side, credit unions offer higher interest rates on savings accounts and certificates of deposit (CDs). For CDs, credit unions provide better returns. In the fourth quarter of 2023, the average 12-month CD rate was 3.20% at credit unions versus 2.23% at banks. In the fourth quarter of 2024, 1-year CDs averaged 3.11% at credit unions compared to 2.36% at banks.

Understanding the Difference

The fundamental distinction between credit unions and traditional banks lies in their operational structure and ownership. Credit unions function as not-for-profit financial cooperatives, meaning they are owned and controlled by their members. This cooperative model contrasts with banks, which are for-profit entities owned by shareholders.

This difference in structure directly influences how each institution sets its interest rates. Credit unions do not aim to generate profits for external shareholders. Any surplus earnings are reinvested back into the institution or returned to members, resulting in lower interest rates on loans, higher interest rates on deposit accounts, and reduced fees. Credit unions are also exempt from federal income tax, allowing them to pass on savings to members through competitive rates and services.

Membership and Accessibility

Becoming a member is a prerequisite for accessing services at a credit union, unlike traditional banks that are open to any customer. Membership eligibility is based on a “common bond” criterion. This common bond can include factors such as living, working, worshipping, or attending school within a specific geographic area, like a county or state.

Alternatively, eligibility might be tied to employment or affiliation with a specific employer, industry, or association. Many credit unions also extend membership eligibility to immediate family members of existing members.

Some credit unions have “open membership” policies, allowing individuals to join by meeting a minimal condition, such as making a small initial deposit (as low as $5) or joining an affiliated organization. To join, individuals need to provide identification, proof of eligibility, and their Social Security number. Applications are available online or in person.