Difference Between Credit Union and a Bank in Canada

The main difference between a credit union and a bank is that a credit union is run as a non-profit enterprise owned by their members.

What is a Credit Union?

Credit unions are financial institutions run as non-profit enterprises owned by their members.

Much like a traditional bank, they offer a variety of financial products and services and serve a wide range of clients.

They’re a popular alternative to banks, boasting more than 5.9 million Canadians who rely on them for their day-to-day banking.

According to the Canada Credit Union Association (CCUA), 233 different credit unions operate across the country through a network of more than 1,700 branches.

The industry employs more than 58,000 Canadians. 

Credit unions are most prevalent in Quebec and Western Canada.

They vary in size, with some catering to specific communities and niches and others maintaining a presence in multiple provinces, serving hundreds of thousands of members.

Differences between a Credit Union vs Bank

On the surface, it seems like the differences between a credit union and a bank are trivial, but there are some crucial distinctions.

1. Business model

A credit union is incorporated and organized as a non-profit cooperative whose mandate is to provide products and services that benefit its members.

It’s run under a set of guiding principles outlined in the International Co-operative Alliance.

Credit unions arrange their business operations in a way that allows them to remain solvent.

Still, beyond that, their primary goal is to serve members’ needs.

They do this by distributing earnings to members as dividends, reinvesting funds to improve their product and service offerings, and funding local community projects.

Conversely, banks operate as for-profit entities, seeking to maximize earnings for their shareholders.

Any profit they earn is distributed to shareholders as dividends or reinvested back into the company to further enhance growth and boost revenue.

Publicly traded banks routinely face immense pressure to meet or exceed earnings targets. 

2. Ownership and electoral structure

Credit unions function as cooperatives, in which each member has a stake in the organization through the ownership of an equity share.

Anyone wanting to participate in a credit union regulated at the provincial level must purchase a share in the organization.

Members receive a share of the profit earned by the credit union in dividends and possess voting rights to appoint the board of directors.

Banks are corporations whose ownership is divided into shares.

Unlike a credit union, the bank owners are usually investors rather than customers.

There’s no requirement for customers to hold an equity stake in the bank they use for their daily financial needs. 

Customers don’t benefit from dividend payments, nor do they retain voting rights to elect the bank’s board of directors unless they own shares of the bank themselves.

3. Regulation

Most credit unions are incorporated in the province where they reside and are thus subject to regulatory oversight at the provincial level. 

Governments draft legislation that dictates how credit unions can operate and designate a specific agency to ensure the rules are observed and investigate non-compliance.

Industry associations also play a vital role by promoting sound business practices for credit unions.

For example, in Alberta, the framework that governs credit unions is the Credit Union Act.

The Credit Union Deposit Guarantee Corporation provides the necessary monitoring and enforcement of the legislation with support from the province’s industry association, Alberta Central.

All credit unions belong to provincial deposit insurance corporations, which guarantee the safety of funds held in members’ accounts if a credit union becomes insolvent.

Canadian banks are regulated at the federal level under the Bank Act, which covers a broad range of areas related to banking. 

The Financial Consumer Agency of Canada (FCAC) monitors and supervises banks’ activities to protect consumers’ interests. 

However, they’re not the only regulatory body that oversees the industry.

Others include the Superintendent of Financial Institutions (OSFI), the Department of Finance, and the Canadian Payments Association.

All federally regulated banks are members of the Canadian Deposit Insurance Corporation, which covers depositors’ funds to a certain amount, if an institution becomes insolvent.

Considerations When Choosing Between a Credit Union vs Bank

Are you pondering the implications of conducting your banking with a credit union vs a bank? If so, here are some things to consider.

1. Financial product variety

Credit unions and banks offer similar financial products: chequing accounts, savings accounts, personal loans, mortgages, lines of credit, insurance, credit cards, financial planning and advisory services.

However, credit unions typically offer a narrower suite of products.

If you value variety or need a customized product, you might be better off with a bank. 

Still, suppose you’re looking to open a basic chequing and savings account.

In that case, it’s worth exploring credit unions, as they tend to offer higher rates than banks.

Certain banks offer competitive rates on par with credit unions, such as those operating exclusively online like Tangerine.

Interest rates on mortgages and other loan products vary widely among banks and credit unions.

However, there’s a greater possibility of securing a favourable rate through a credit union since it exists primarily to serve members’ interests rather than maximize profits.

2. Fees

Credit unions typically offer lower bank account fees than banks, again owing to their mandate of putting members’ needs ahead of profit targets.

However, this isn’t always the case, as some banks charge relatively little on customers’ accounts, especially those based entirely online.

3. Membership requirements

Credit unions have more stringent application requirements than banks.

This attribute stems from the fact that they usually cater to a particular demographic.

To be eligible for membership in a credit union, you might need to be part of a particular union or profession (such as a teacher or healthcare worker), work in a specific industry, or live in a specific geographical location.

Conversely, banks will accept almost anyone as a customer.

However, you’ll fail to qualify for a bank’s most lucrative products if you possess a substandard credit score and don’t have a reliable income stream.

4. Digital banking services

Is a robust, versatile, and sophisticated online banking platform something you consider indispensable when evaluating a financial institution? If so, a credit union might not be the best option for you.

Credit unions earn less profit overall than banks and have smaller operating budgets.

As a result, they have less capital to invest in developing and refining their online platforms and mobile applications.

Banks spend considerably more on technology, resulting in user-friendly apps and reliably efficient online banking functions.

However, particular credit unions do dedicate a sizable portion of their budget to technological developments and upgrades, so you shouldn’t discount them altogether in this area.

5. Branch locations and ATMs

Large traditional banks, such as RBC and CIBC, conveniently provide their customers with plenty of retail branches across Canada.

On the other hand, credit unions have a much smaller network of branches, significantly if their scope of business limits them to a particular city or province.

Banks and credit unions rank equally high regarding ATMs, with thousands of machines scattered across the country.

The latter offers zero-fee ATM transactions if they’re a member of the EXCHANGE Network.