As a Canadian resident, choosing between using a conventional bank or a credit union might seem confusing. There are tons of reasons why people pick credit unions in Canada over banks. The most peculiar reason is the interest rate.
Most people might not instantly notice the rate, but credit unions offer low chequing and saving interest rates compared to what banks offer. This article will be analyzing what credit union is in Canada, its pros and cons and similarities and differences.
What is a Credit Union in Canada?
Generally, credit unions are financial cooperatives owned by members. All members involved have a stake in the cooperative, share in profits, and vote for the Board of Directors. Credit unions have been part of Canada’s financial landscape for decades. There are currently about 241 credit unions in Canada, with over 5.8 million members.
Credit unions are very similar to banks. They offer complete financial services that have many of the features of banks. Unlike banks that are big institutions for-profit corporate entities that make money majorly from interest on loans, credit unions are not-for-profit cooperatives.
They are owned and run by a volunteer board of directors who are democratically elected by members. Members include those in the communities serviced by the credit union. Like banks, credit unions have savings and chequing accounts and also credit cards. They can also provide investment advice and issue loans and mortgages.
Although credit union has a lot of similarities with banks, there are significant differences between the two. One of which is their model of operation. Credit unions utilize a not-for-profit model, and their customers own them. They also provide their member’s affordable financial services and often give away a portion of their yearly profit to support local community projects and development.
Types of Credit Unions in Canada
Generally, there are federally and provincially regulated credit unions in Canada. Under the federal government, we have two unions, they are:
- Caisse Populaire Acadienne Itee (UNI Financial Cooperation)
- Coast Capital Savings
While for the provinces, there are several credit unions, some of them include:
- Coast Capital Savings Credit Union
- Connect First Credit Union
- Vancity
- Steinbach Credit Union
- Meridian Credit Union
- Affinity Credit Union
How Credit Union Works in Canada
Credit unions are member-owned financial cooperatives. They run on as an autonomous group of persons working collectively to meet their basic economic, social, and cultural needs via a democratically governed enterprise. Below are some of the principle credit union operate on:
- Voluntary and open membership
- Democratic member control
- Member economic participation
- Autonomy and independence
- Education, Training and Information
- Cooperation among cooperatives
- Concern for community
Based on their terms of operations, every member has a say on how the credit union should operate. For orderliness, there is a volunteer Board of elected Directors who the Chief Executive Officer assists. They all see to the day-to-day running of the business.
How to Become a Member
Unlike a traditional bank that you automatically become a client once you open an account, to become a member of any of the credit unions in Canada, you must meet the eligibility requirements. To become a become, you must possess some shares; these shares make you belong to the cooperative as it gives you part ownership.
Buying a share in a credit union is quite affordable as the average share is about CA$5, and you might be required to buy more than one share. You can budget to buy after five or more.
Generally, every province has its regulated credit union, and most of them require you to meet the following qualifications.
- You must be an adult – 18 and above.
- Be a resident of the province – aside from federally incorporated credit unions as they accept anyone who is a resident of Canada.
- You’re ready to buy an equity share in the credit union.
- Be debt-free – have not declared bankruptcy in the past seven years.
Once you buy shares in a credit union, become a full member irrespective of your income, credit score, and share value.
Are Credit Unions Safe?
Most Credit unions are regulated provincially. They are also members of a deposit insurance corporation that safeguard member’s money. Hence, credit unions are safe. Since credit unions are available in each province in Canada, all provinces have a deposit insurer whose work is to guarantee credit union members’ deposits.
The provincial government governs this body. They are also responsible for managing compliance with solvency rules and ensuring the credit union system’s smooth running.
Available Accounts Offered by Credit Unions in Canada
Like banks, credit unions have a variety of financial account they offer members some of the most prominent account members have access to include:
- Insurance, financial advice and planning services
- Chequing accounts
- Loans
- Savings accounts and term deposits
- Mortgages
- Credit cards
- Investment accounts
Pros And Cons of a Using Credit Union
With everything that has an advantage, there is a downside to it. While most people have accepted credit unions as an alternative to banks due to their several benefits, some disadvantages come with using credit unions. Let’s take a look at some of the pros and cons of being a credit union member.
Pros of a Using Credit Union
- Interest Rates
Credit unions pay higher interest rates on savings, chequing and other deposit accounts than traditional banks.
- Lower service charge
Credit unions charge lesser account maintenance and service fees compared to conventional banks. As a member, you’ll have access to no-fee chequing accounts and no-minimum balance banking. It is advisable to read the terms and conditions of the credit union you are signing up with; this will equip you with enough information.
- Loans
Credit unions offer better rates on any loan, be it mortgage or personal loans. Their credit comes at a competitive rate.
- Customer service
Credit unions provide exceptional and personalized physical customer service. Their response time is swift, and customer agents are professionals.
- Community Development
Supporting community growth and development has always been a part of the credit union’s mission since its inception. Credit unions support local community projects. This means, in a way, they are helping their members. Most credit unions have been seen to champion projects geared towards sustainability, the fight against poverty, etc.
- Flexible ATM
Most credit unions have tons of surcharge-free ATMs across Canada. This means they do not charge for ATM usage as many credit unions in Canada are a part of the Canada-wide Exchange Network. This network gives members unlimited access to tons of free ATMs.
- Deposit Insurance
Deposit from members in credit unions is provincially regulated, unlike banks that are federally regulated. Each credit union in a province in Canada has a minimum deposit of CA$100,000 deposit insurance.
Cons of a Using Credit Union
- Limited Financial Products
Most credit unions offer fewer financial products, hence why they have expanded their financial service offering over time by partnering with other service providers. Also, not all credit unions offer all the essential financial services you may need.
- Limited Locations
Generally, credit unions have fewer branches across the country, unlike traditional banks. Most of their services are limited to a particular province. They have lesser branches in Canada which can be quite a hassle for people who need to visit a branch to deposit a cheque or seek financial advice.
- Lack of Adequate Technology
Unlike conventional banks with a big budget for scaling their website and apps to be user-friendly and gadget compatible, credit unions lag behind this aspect.
