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Credit Unions vs. Banks
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When it comes to money matters, banks and credit unions dominate Canada’s financial landscape. Both institutions have much in common: they offer chequing and savings accounts, and have a selection of other general financial services to help Canadians manage their money.
Yet, while on the surface banks and credit unions share many similarities, they also have major differences in the way they operate. Understanding these distinctions can allow you to make a more informed decisions about your financial needs and goals, and also make it easier to choose the institution that will help you maximize your money.
Differences between Credit Unions and Banks
Profit vs non-profit
The key difference between banks and credit unions lies in their profit structure. Banks are privately run or owned by shareholders and their main operational goal is to maximize profits. Conversely, credit unions are cooperatives that are owned by their members and operate as not-for-profit organizations.
Banks want to maximize shareholder returns and be profitable. They generate these profits by charging fees and having high interest rates on loans and mortgages, while only offering low rates on savings accounts. Credit unions are not-for-profit financial cooperatives that are owned and operated by their members; therefore, they strive to provide their members with the best possible services and rates, rather than satisfying shareholders. A portion of whatever profits a credit union earns are shared with the members, as well as with approved community programs.
Being a Client vs a Member
Banks are open to nearly all Canadians. Almost anyone can walk into any bank in Canada and open an account as long as they show the required identification.
Credit unions, however, have membership restrictions. Often you’ll have to live or work in the community in which the credit union operates. To join a credit union, you’ll also be required to become a member by buying a share. Often the fee to buy a share is nominal, like $5.
Once you become a member, you become an owner of the credit union and you gain the right to have a say in how the financial institution operates. Representatives of the board of directors are democratically elected by members, and members with the relevant experience can even run for election to the board. The membership requirement can create a sense of community and even of empowerment in the way the financial organization is run.
Service Offerings
Because banks are profit driven, it’s in their interest to offer as many financial products and services as possible. These large financial institutions not only offer chequing and savings accounts, but may have several different varieties of each type of account, as well as RRSP and TFSA accounts as well. Many banks also offer a wide selection of loan types, mortgages, as well as a variety of credit cards. They may even offer insurance, investing services and other wealth management services.
Credit unions, because they are non-profit, typically offer lower fees and more favourable interest rates on chequing and savings accounts compared to traditional banks. However, since credit unions are not as large as Canada’s big banks, they therefor tend to have more limited financial products and services. You are not likely to get a wide selection of savings and chequing accounts or mortgage types (for example, credit unions may not offer cash-back or reverse mortgages). You may have to go outside of your credit union to open an investment account or for more complete wealth management services.
Locations
While credit unions do have some physical branches, they are usually limited in number and are typically confined to the province in which they operate. In contrast, banks have branches all across Canada, and in some cases, even in other countries.
However, both banks and credit unions have extensive ATM networks, making it convenient for customers to access their funds. Additionally, in a cooperative relationship arguably not often found among competing banks, credit unions give members access to thousands of ATM's across Canada that are "ding free," meaning that members from any credit union in the country can withdraw, deposit, and check their balances without incurring any surcharges.
Regulation
Canadian banks are overseen and regulated by the Office of the Superintendent of Financial Institutions (OSFI), while credit unions can fall under either provincial or federal regulation. Both institutions are subject to very high regulatory standards and are routinely inspected and audited to ensure they are meeting their regulatory duties and standards.
Deposit Insurance
Canadian banks are protected by the Canada Deposit Insurance Corporation (CDIC), which insures deposits up to $100,000 per account. Credit unions are protected by provincial deposit insurance plans, which typically offer similar levels of protection. For example, in Ontario deposits at credit unions are covered by the Financial Services Regulatory Authority of Ontario. Deposits held in non-registered accounts are eligible for coverage of up to $250,000. Deposits held in registered accounts have unlimited coverage.
Banking Tech
Both banks and credit unions in Canada have been actively adopting technology to enhance their online presence to better serve their customers and members. That being said, banks have larger budgets than credit unions and have generally been quicker to adopt fintech advances because they are often able to invest more heavily in cutting-edge technology and mobile apps, which can result in more advanced and feature-rich online banking platforms.
Because credit unions tend to be smaller and have a more localized customer base (rather than a national one like banks) they tend to be slower to focus on making their online presence more accessible and user friendly.
Customer Service
Arguably, as banks are profit driven, they don’t have the same interest in keeping their customers happy as credit unions, nor do they strive to offer the same level of personalized service. Because credit unions are run and managed by their own members, there is a much stronger motivation to maintain customer satisfaction and ensure they prioritize their members’ financial health. In fact, in 2022, Ipsos awarded Canada's credit unions the overall Customer Service Excellence Award for 2022, outperforming all other financial institutions. The award marked the 18th year in a row that credit unions have received that honour.
Who can join a credit union?
Credit unions are financial institutions that operate as cooperatives and are owned and run by their members. Membership requirements can vary by credit union but often include being a member of the community or province/territory in which you bank. You may also be required to buy a nominal share in the credit union to become a member.
Do banks offer more services than credit unions?
In general, banks offer more services than credit unions because they have a national rather than localized client base and thus need to offer a wider range of services that will appeal to the largest possible selection of Canadian society. Products and services that you may find at banks that you may not find at credit unions (especially very small ones with only a localized presence) would potentially include:
Investment services: Banks typically have an investment banking arm that offers services, such as underwriting and selling securities, assisting with mergers and acquisitions, and providing financial advisory services.
Wealth management: Banks typically have a wealth management division that provides services like financial planning, investment management, and even estate planning.
Credit cards: Big banks tend to offer a wide selection of credit cards to fit a variety of needs and many have loyalty programs that can earn their credit card users rewards (numerous credit unions offer credit cards but often don’t have nearly the same selection as a big bank).
Insurance: Large financial institutions may sell insurance products like car, property and life insurance.
Advantages of Banks Over Credit Unions
There are several advantages that banks offer over credit unions in Canada, including:
Presence: Banks have more bricks-and-mortar locations across the country and are likely to have more branches and ATMs than credit unions.
Greater range of services: Banks offer a wider range of services, including financial planning, a large variety of loan types, and wealth management.
Larger size and scale: Banks are often larger in size and have more resources to invest in new technologies, which can result in more advanced and feature-rich digital banking platforms.
Advantages of Credit Unions Over Banks
Here are some advantages of credit unions over banks:
Lower Fees: Because they are non-profit entities, credit unions often have lower fees than banks, including lower checking account fees, overdraft fees, and ATM fees.
Higher Interest Rates: Another consequence of not being profit driven is that credit unions typically offer higher interest rates on savings accounts and things like GICs.
Personalized Service: Credit unions are often known for their personalized service and member-focused approach. Members have a say in how the credit union is run, and decisions are often made with the best interests of the members in mind.
Community Involvement: One of the primary mandates of a credit union is to give back to their local communities and thus they are often more involved in supporting local causes and organizations.