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Banks vs. Credit Unions in Canada - A Detailed Comparison

Updated on Apr 06, 2020
Banks Vs Credit Unions

When in Canada, choosing between operating from a bank versus a credit union may throw up some questions. We have analyzed the pros and cons for you so that you can decide which is a better financial platform for your needs in Canada. We have covered the similarities and differences between banks and credit unions in Canada and will dive deeper into the advantages of a credit union vs a bank.

Banking is a financial system in which regulated institutions partake in accepting deposits, lending money, and transferring funds. Canadian banking system groups financial institutions into five main categories -

  • Chartered banks
  • Trust and Loan companies
  • The Cooperative Credit Movement
  • Insurance Companies and
  • Securities Dealers

The Big Five banks listed below dominate Canada’s financial ecosystem

  • Royal Bank of Canada (RBC)
  • Toronto-Dominion Bank (TD)
  • Bank of Nova Scotia (Scotiabank)
  • Bank of Montreal (BMO)
  • Canadian Imperial Bank of Commerce (CIBC)

Credit unions have been gaining popularity since its first 'caisses populaires' (people’s bank) in Quebec in the 1900s.



So, what are the similarities between banks and credit unions?

There are many similarities between a bank and a credit union as a financial institution, which operates under similar regulations pertaining to loans, mortgage, and security. In terms of financial products, credit unions vs banks debate is irrelevant because you will likely find your banking needs at both credit unions and banks.

  • Checking accounts
  • Savings Accounts
  • Loans
  • Credit cards
  • Mobile Banking
  • ATM facilities

Then, what are the differences between banks and credit unions?

  • Ownership
  • The main difference between a bank and a credit union is that Banks are for-profit and Credit Unions are not for profit. Credit Unions are owned by their customers, who are the members of the union. Since Credit Unions are non-profits owned by its members, every member works together to serve one another. They pass on surplus funds to customers.

    Banks are owned by the stockholders, who are a group of investors. As a for-profit institution, every investor wants maximum ROI and the incentive is to make as large a profit possible.

  • Membership
  • Banks can do business with any customer as long are they do not have a history that challenges financial or legal regulations.

    A credit union is a financial cooperative made up of members who share a common bond; such as working in the same industry or simply living in the same community. Credit unions, on the other hand, can only do business with its members. While some credit unions are evolving their business practices and allowing members who pay membership fees into the union. Some credit unions are very restrictive in accepting new members, and some may even require you to get a formal introduction from an existing member. And this could be one of the main drawbacks of a credit union.

  • Customer Service
  • Banks offer 24/7 call centers support in multiple languages. Many banks will appoint a Relationship Manager if you are a high-value customer or have a business account with them.

    The silver lining to the drawback of membership requirement of credit unions is the personalized customer service. Since credit unions have smaller branches, usually within a community, they can offer fast and personalized service. Many credit unions even assign a relationship manager to work with you.

    Customer service is one of the main advantages of a credit union vs a bank

  • Interest Rates
  • An interest rate is a sum of money due as a proportion of the amount lent or borrowed. If you are a borrower, you want a lower interest rate. If you are a lender, you want a higher interest rate. Overall, credit unions offer higher interest rates on deposits and lower interest rates on loans.

    Banks, on the other hand, have lower interest rates on loans and higher interest rates on deposits.

  • Fees
  • The most popular question asked is if credit unions have fewer/lesser fees than banks? The short answer is yes, credit unions often have lower fees than traditional banks. However, they are more limited in financial product offerings.

    Banks, on the other hand have higher fees but they have more financial products in the portfolio.

  • Security
  • Are credit unions safer than banks?

    The banking system in Canada is highly regulated and secure. Any financial institution registered in Canada is safe. In addition, Credit unions, if federally insured, are backed by the National Credit Union Administration (NCUSIF) and bank funds are insured by the Federal Deposit Insurance Corporation (FDIC).

    Both credit unions and banks provide similar protections for deposits, with up to $250,000 in deposited funds insured against losses under the current laws. You can cross-check if your institution is federally insured by looking for the official NCUSIF or FDIC sign. Or use the FDIC or the NCUSIF’s website to check their status.

    Banks vs credi unions

    To recap, why should one choose a credit union over a bank?

    There are a few pros and cons for credit unions vs banks which can help you make that decision. If you are looking for basic banking products to deposit paychecks, pay bills, and make card purchases, both banks and credit unions provide the same services.

    Credit Unions are great if you want lower fees, a lower rate of interest on loans, higher interest on your savings, and personalized customer service.

    Banks are great if you are looking for specialized financial products, a wide network of ATMs, and advanced digital banking on both desktop and mobile.

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