credit union

Credit Union vs Bank in Canada

When it comes to saving your money or seeking financial services, most Canadians impulsively go to a bank. This is due to the trust banks have built for decades and the financial security most people perceive to derive from them. Although banks serve their purposes, they are not the only financial institutions available to Canadians when it comes to providing financial products and services.

Credit unions are a prominent alternative to banks in Canada. They offer similar financial products and services as banks. However, there are distinct differences and similarities between the two institutions.

Credit Unions vs Banks in Canada

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.

The similarities between credit unions and banks in Canada are striking, yet, they have several differences. Let’s take a look at the similarities and differences between credit unions vs banks in Canada.

What are credit unions in Canada?

Credit unions are financial institutions; their mode of operation is similar to that of banks, except that their members own them by buying shares. Credit unions are not-for-profit cooperatives that provide financial services to their members.

Their primary goal is to provide exceptional products and services to their members. Since they are non-profit organizations, all the funds they earn are reinvested into the organization. These funds are issued as dividends to their members or donated to the community as part of their contribution towards community development.

So far, credit unions can boost tons of members as their size ranges from small members in a local community to a large organization with thousands of members. Credit unions are prominent in Quebec and Western Canada. Some credit unions in Canada include:

  • Coast Capital Savings
  • Connect First Credit Union
  • Vancity
  • Steinbach Credit Union
  • Meridian Credit Union
  • Affinity Credit Union

Banks in Canada

The banking system in Canada is quite reliable and convenient, although it comes with a price. You become a client once you open an account with them. The Big Five banks in Canada – RBC, BMO, TD, CIBC, and Scotiabank have different financial packages suitable for new and existing clients. Choosing the best bank to sign up with depends on your specific financial needs. Some of the prominent banks in Canada include:

  • Scotiabank
  • CIBC
  • Bank of Montreal (BMO)
  • HSBC Canada
  • National Bank of Canada

Similarities Between Credit Unions vs Banks in Canada

Credit unions and banks both have a similar mode of operations. Both are organizations with physical branches where members/clients can carry out their banking business. They offer chequing accounts, investment and retirement packages, mortgages, loans, savings accounts, loans, and credit products.

The credit cards offered by a credit union are similar to that of a conventional bank. Utilizing it also is similar as they are generally accepted anywhere a traditional debit or credit card is allowed.

Credit unions also offer mortgages to homebuyers similar to banks. They have a range of mortgage terms and conditions as well as fixed and variable rate mortgages.

Difference Between Credit Unions vs Banks in Canada

Below are some of the distinctive difference between credit unions and banks:

  • Profit vs. Non-Profit

One of the most significant differences in comparing credit unions and banks is how each entity operates. In Canada, banks are profit-driven; they are big firms listed on the Toronto exchange, generating solid returns for stockholders. And the profits they emerge from clients are used to extend their company.

A credit union, on the other hand, is a not-for-profit entity. Their mandate is to maximize their members’ financial security and also support the community. This support is done via donations, promoting small/medium businesses and community programs within the province it is established.

  • Fees

Most people are uncomfortable with transactions even though they don’t know how to avoid them. Credit unions offer free chequing accounts with no requirements to be met like minimum monthly balance. Banks charge higher fees than credit unions.

  • Interest Rate

Credit unions have a more favourable rate when it comes to the interest rate on mortgages and loans. On the other hand, banks provide lesser interest rates on loans and higher interest rates on deposits. The reverse is the case with credit unions; they offer higher interest rates on deposits and lower interest rates on loans.

  • ATMs

Whereas banks charge you for making use of an ATM from a competitor bank, several credit unions across the country are a part of the EXCHANGE Network, which permits you to use related ATMs without charge.

  • Membership/Clients

As peculiar with profit-driven public organizations, a bank runs on clients, board members and stockholders. In comparison, non-for-profit cooperation like credit unions revolves around members. To become a member of a credit union, you must first buy shares in the cooperation.

These shares will make you belong to the credit union as it gives you part ownership. Everybody within a community in a credit union has equal possession and balloting rights.

You can become a client in a bank by opening an account. Members in a credit union have more interactive relationships than clients in a bank.

  • Products and Services

Generally, banks have a wider variety of products and services than those offered by credit unions. While most prominent banks provide a range of basic to premium chequing and savings accounts, credit unions’ products and services may be limited to one or two varieties of each account.  Also, credit unions may have nowhere close to the same form of credit card options compared to banks.

  • Board Members

Board members in credit unions are volunteers who are voted in by means, while that of a bank are appointed and paid by shareholders.

  • Locations

Since they are not major firms, credit unions have considerably fewer branches than traditional banks, particularly in rural areas. This is a significant downside for people who wish to visit a physical branch in their location to try out their banking. You can see at least a branch of the top five banks in every province in Canada.

  • Regulations and Insurance

Banks and credit unions are regulated in totally different ways. While Credit unions are regulated by the Provinces they are located, banks, on the other hand, are regulated by the federal authorities – the office of the Superintendent of Financial institutions.

Deposits held in Credit unions are at least a minimum of CA$100,000 insurance, while banks’ deposits are guarded by the Canada Deposit Insurance Corporation with up to CA$100,000 insurance covered.

  • Technology

Banks have been able to stand the test of time both online and offline. The same cannot be said of credit union’s online presence. When it comes to online presence and integrations, traditional banks are way ahead of credit unions.

Credit unions don’t have the profits to budget for a highly refined and user-friendly website with essential integrations. They also lack the adequate technologies and social media knowledge that most banks have. This means that, unlike a conventional bank that you can reach out to on any social media platform like Facebook or Twitter and get an almost instant response, we can’t say the same for credit unions.

Additionally, banks currently integrate apps to ease online banking for their clients. They ensure these apps are compatible with your devices and most e-wallets like Apple Pay and Google Pay. Sadly, most credit unions don’t have their in-house monetary apps.

  • Customer Satisfaction

When it comes to customer satisfaction, credit unions so far are doing an exceptional job at ensuring all their member’s financial needs are met. Banks offer good customer satisfaction too.

Account Types

Credit unions and banks don’t disagree noticeably regarding the categories of accounts that members will open. Products like savings accounts, checking accounts, loans, mortgages, credit cards, wealth building, retirement, and investment are all offered at each enterprise.

However, banks tend to supply a more comprehensive kind of account and product types than credit unions. Also, they are more inclined on business loan products and tend to make a significant financial gain. Contrarily, credit unions are more willing to issue smaller consumer loans.

Choosing Between a Credit Union vs Bank

Understanding the variations and similarities between banks and credit unions in Canada is the first step to decide which choice most accurately fits your financial situation.

Next is to evaluate their pros and cons, account types, and available products and services. Below are some of the factors to considering when choosing between a credit union and a bank in Canada:

  • The types of chequing and savings accounts available
  • Credit cards
  • Branches
  • ATMs
  • Transaction fees
  • Minimum balances
  • Online and mobile banking option
  • Interest rates
  • Loan products accessible
  • Mortgages
  • Auto funding
  • Reputation
  • Customer service

Conclusion

There are several similarities between banks and credit unions in Canada. Although their similarities might be striking, their differences also are worth noting.

When it comes to choosing who to sign up with, you have to consider your province in Canada, financial needs, mode of transactions, and even possible loan or mortgage application. Ultimately, both credit unions and banks are effective and serve their purposes even if they have different target audiences.

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