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.
|Products / Services Offered||Narrow range of loans, credit cards, bank accounts, insurance, and other financial products; both registered and non-registered accounts are available||Wide range of loans, credit cards, bank accounts, insurance, and other financial products; both registered and non-registered accounts are available|
|Savings Account Interest Rates||High||Low|
|Digital Banking||Good to excellent online banking applications||Excellent online banking applications|
|Physical Locations||Few branches available||Many branches available|
|Main Benefit||Higher interest rates for bank accounts and lower rates for loans||Wide variety of financial products and services|
|Main Drawback||Fewer financial products to choose from||Higher interest rates on loans and lower interest rates on bank accounts|
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.
Did You Know?
According to a report issued by the CCUA in the second quarter of 2021, the largest credit union (excluding Quebec) in Canada by asset size was Vancity.
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.
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.
In 2012, the Bank Act was amended to allow for federal credit unions, the first of which was UNI Financial Cooperation on July 1, 2016.
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.
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.
Did You Know
Credit unions are respected and praised for their customer service. The industry received the Ipsos Customers Service Award in 2018, marking the fourteenth year in a row the industry has garnered the honour.
Frequently Asked Questions
- Is your money safer in a credit union or a bank?
Whether you keep it in a credit union or bank, your money is equally safe in Canada.
The Canadian Deposit Insurance Corporation (CDIC) protects funds you hold in a bank chequing account or savings account up to $100,000.
Similarly, provincial deposit insurance corporations guarantee the money individuals keep in credit union accounts. In many cases, the amount protected exceeds what the CDIC offers to banks.
For example, the Financial Services Regulatory Authority of Ontario insures credit union members for up to $250,000 on non-registered accounts and provides complete protection for registered accounts.
- What is the downside of a credit union?
The primary disadvantage of using a credit union for your financial needs is the lack of variety in products and services. Some also have subpar technological capabilities in terms of online and mobile banking as they work with smaller capital investment budgets.
Compared with credit unions, banks offer their customers access to a wider variety of account types, credit cards, personal loans, mortgages, etc. They are also continuously developing their online and mobile platforms, providing customers with an easy and convenient way to manage their finances.
Global Legal Insights – Banking Laws and Regulations 2021, Canada
Financial Services Regulatory Authority of Ontario – Credit Unions and deposit insurance.