No matter who you are or what you do, at some point, you are going to require certain financial services. At that point, it is important you have a strong financial institution to bank on (pun very much intended). There are two major kinds of financial institutions in Canada; Banks and Credit Unions. Therefore, to enable you to choose which of these institutions better suits your needs, you will need to know the difference between banks and credit unions in Canada.
These institutions, though easy to confuse due to a number of similarities, are largely different. Hence, in this article, we shall look to enlighten you and help you understand what these different institutions consist of and how they are run. This will help you better understand the subject matter.
Both banks and credit unions in Canada are overseen by the Office of the Superintendent of Financial Institutions (OSFI).
In this article
What is a Bank?
A bank is a financial institution, duly licensed and authorised to render financial services including but not limited to; deposit and withdrawal services, loan making, wealth management, currency exchange, etc.
Banks in Canada, like anywhere else in the world, offer different services depending on the policies they follow. However, the primary business banks do is to receive deposits from people who have the money, then use the said money to perform other transactions, e.g. loaning.
Types of Banks in Canada
There are many banks in Canada, however, there are just 5 major kinds of Banking institutions in Canada, depending on the kinds of extra services they offer. They can be grouped into the following;
- Chartered banks
- Trust and Loan companies
- The Cooperative Credit Movement
- Insurance Companies and
- Securities Dealers
Top 5 Banks in Canada
There are lots and lots of banks/banking institutions in Canada. This is how banks have been able to dominate the financial sector in Canada. However, some banks clearly stand above others in terms of prestige, reputation, age, etc. These banks are known as the Big 5. They are listed thus below;
- Royal Bank of Canada (RBC)
- Bank of Montreal (BMO)
- Canadian Imperial Bank of Commerce (CIBC)
- Bank of Nova Scotia, and
- TD Canada Trust
Find a more comprehensive list of banks in Canada.
What is a Credit Union?
A credit union is a financial institution, much like banks. However, unlike banks that do business, credit unions are member-controlled nonprofit organisations. Hence, they operate by seeking to provide better services for their customers, rather than making better profit.
The Canadian Credit Union Association (CCUA) is the national body for Credit Unions in Canada. There are about 700 credit unions and caisses populaires in Canada; a number that has built up since the early 20th century when the people’s bank (caisses populaires) opened business in Quebec, courtesy of Alphonse Desjardins.
Credit unions are mostly run by provinces; and most of those belong to the CCUA. They are more popular and have the most membership in Quebec. Because they are provincially run, they bow to provincial rules on how to lend/loan money, invest, borrow, etc.
In a bid to create a distinction between them, the OSFI have prevented credit unions from referring to their activities as “banking”.
Top 10 Credit Unions in Canada
Like banks, there are various Credit Unions in Canada. This provides a range of preferences for those who would want to transact with them. Listed below, we have only provided the 10 most prominent credit unions in Canada.
- Vancity
- Coast Capital Savings Credit Union
- Meridian Credit Union
- Servus Credit Union
- Conexus Credit Union
- First West Credit Union
- Desjardins Ontario Credit Union
- Steinbach Credit Union
- Prospera Credit Union
- Alterna Savings and Credit Union
Banks and Credit Unions in Canada
As already established, banks and credit unions are very similar in operation and structure. However, there are some differences between them that cannot be ignored.
Therefore, it is important that we establish how these institutions compare. We will be comparing banks and credit unions in Canada under different categories to understand their similarities and differences.
Similarities
- Services: Most services credit unions offer are similar to banking services, under similar regulations. Some of these services include; deposit and withdrawal accounts, loans, mortgages, mobile banking, savings accounts, checking accounts, etc. All of these services, you can find in both banking institutions and credit unions.
- Security: Both banks and credit unions are financial institutions, so security is a huge deal in both institutions. The difference between these two, however, is that banks are insured by the Federal Deposit Insurance Corporation (FDIC) while credit unions are insured by National Credit Union Administration (NCUSIF). Lots of policies also exist; federal and provincial, to keep these institutions in line and secure their customer funds.
- Cards: Both credit unions and banks offer card services as well. They offer ATM services that allow their customers access to funds wherever they go.
Differences
- Ownership: Banks are profit-oriented organisations. They are owned by shareholders who make decisions to obtain maximum Return on Investment (ROI). They do business with whoever it is the law permits them to. Credit unions, on the other hand, focus on their customers’ satisfaction. They are owned and run by their very customers known as ‘members’.
- Interest Rates: When you take loans from financial institutions, you obviously want to pay back with little or no interest. However, since the institutions need some sort of incentive to keep running, you will have to pay back with interest. Credit unions tend to have lower interest rates than banks with similar agreement terms. On deposits however, the reverse is the case. Banks have much lower interests while credit unions have higher interests.
- Insurance: As mentioned earlier, both banks and credit unions follow similar financial security regulations. They take measures to insure customers’ funds in the event of unforeseen circumstances. Federal chartered banks insure their customer funds with Federal Deposit Insurance Corporation (FDIC) while credit unions make use of National Credit Union Administration (NCUSIF).
- Location: Credit unions, just like we’ve mentioned before, are provincially-run. This means they are usually localised within their approved provinces; thus, they have few branches. Banks, on the other hand, have branches everywhere in Canada. If you leave the province where a credit union you belong to is chartered, you may not find their branches to do business with.
- Goals: Credit unions are not profit-driven. They aim only to provide more customer-centric services, while they invest their small profit back into the business. Banks, however, has a stockholder board that makes profit-driven decisions and has a profitable business model.
How do I join a Credit Union in Canada?
Firstly, joining a credit union, like joining a bank in Canada, has some terms that need meeting before you are eligible. Because they are mostly provincially-run, you may have to be living, working, or schooling in the province where it is located.
However, federal-incorporated credit unions are open to you wherever you are in Canada. In addition, some credit unions are aligned to certain professions, so it’s good you know what kind of union you’re joining.
Therefore, here are some generic requirements to meet for joining a credit union;
- Provide a means of identification; e.g. national passport, or other forms of ID.
- Ensure you meet with the minimum acceptable-age requirements for your province/for Canada, depending on the kind of credit union.
- Have no issue of bankruptcy in at least 7 years
- Be willing to purchase between $5 – $25 worth of capital share in the credit union.
Choosing Which Type of Financial Institution to Patronise
When choosing whether to patronise a bank or a credit union, there are lots of things to consider. It is important you do your research instead of just following generic characteristics of credit unions and banks in Canada.
Credit unions have better customer service, lower fees, almost no taxes, and higher interest rates on deposit. Banks, however, have a wider network, more branches, and better self-service experience.
Find which of these better aligns with your needs and make the right choice.
Frequently Asked Questions
#1. Who can join a Credit Union in Canada?
Credit unions are open ro any and everybody. As long as you meet the proper requirements, i.e. identification documents, age, financial history, residential province, and so on. There are rarely ever any further union-specific requirements. If there are, though, you will have to meet them before joining.
#2. What does it mean for a Credit Union to be Federally Chartered?
Federally-chartered credit unions are those that operate under Federal authority in Canada. These ones are governed by the NCUA.
#3. Why are Interests Higher in Credit Unions than Banks in Canada?
Credit unions, unlike banks in Canada, focus on covering operating costs, not making profit. Hence, they are able to provide better interest deals for their customers.
Conclusion
Both banks and credit unions in Canada are great financial institutions to do transactions with. Credit unions provide more personal services and banks have a wider range of services (i.e. more financial products). In the end, it comes down to what sort of services you want for yourself and what is most practical for you.
