Why does Canada have both credit unions and traditional banks? It’s a good question with a history of protection and inclusion that remains relevant today. In fact, that’s why credit unions in Canada are not only surviving, they are thriving!
You see, a country's financial institutions dictates its economy, and the more significant the monetary backing, the stronger the country. Canada's economy is quite strong due to its banking system, dominated by five big players. These banks are appropriately dubbed the Big Five Banks and most of the country's wealth is exchanged between them only. These five banks are:
- TD Canada Trust
- Canadian Imperial Bank of Commerce (CIBC)
- Royal Bank of Canada (RBC)
- Bank of Montreal (BMO)
Despite these five banks dominating the finance sector, another type of institution has been around for years and is still prospering. These are known as credit unions. They are a good alternative.
The idea of credit unions was coined last century by Alphonse Desjardins. In 1900 he opened the first successful credit union or “people’s bank” in Quebec, known as a caisse populaire. Desjardins created a financial cooperative designed to help the community first rather than make a profit.
Credit unions today do make profit, and we will cover what they do with it later on. Currently, there are 438 credit unions and caisses populaires in Canada. They strengthen the economy tremendously by community donations, sponsorships, scholarships and bursaries, creating jobs, and providing small businesses with capital. In 2019, an average of 4 percent of Canada’s credit union pre-tax income went to community donations and sponsorships.
Credit unions and caisse populaires are financial cooperatives which means several things differentiate them from banks. This article will cover what credit unions are, and who they are for. We will also discuss some of the major differences between banks and credit unions while also considering the major players in the credit union industry.
- What is a credit union in Canada?
- How do credit unions in Canada operate?
- How to join a credit union
- Credit unions vs. banks
- What financial products do credit unions in Canada offer?
- Does the Canadian Deposit Insurance Corporation cover credit unions?
- Credit unions in Canada
- Four popular credit unions in Canada
- So, are credit unions in Canada better than traditional banks?
- Wrapping up
What is a credit union in Canada?
Simply put, a credit union is controlled and governed by the people leveraging its services. You become a member and an owner of a credit union when you join. This means that the people that are using it are also managing it.
The primary objective of a credit union is to offer their members the best possible advice, services and products. Because credit unions are community-minded organizations, owned by their members, a lot of the profit made is invested back into the community in which they operate and in some cases, shared back with members in the form of dividends.
Credit unions in Canada gained some serious traction over the years. Members can range anywhere from a few hundred in smaller credit unions to thousands in large ones. Western Canada is at the forefront of accepting credit unions as their primary financial service, and the rest of Canada is slowly following suit.
How do credit unions in Canada operate?
Credit unions are full-service financial institutions! They offer a full suite of banking products, chequing and savings accounts, lines of credit, loans, and mortgages. Most credit unions in Canada are provincially regulated and deposits are well protected and insured.
Recent legislation permitted credit unions to convert to a federal charter, but they still operate as a member-owned cooperative organization. Major financial institutions are federally regulated under the The Office of the Superintendent of Financial Institutions (OSFI), an independent agency controlled by the government. It oversees the operations of domestic banks, foreign banks in the country, fraternal benefit societies, trust companies, casualty, property, and life insurance companies, and even loan companies.
In addition, the Canadian Deposit Insurance Corporation (CDIC) insures eligible deposits payable in Canada up to $100,000 per insured category. The Bank Act of Canada is the primary legislation that addresses federal credit unions and banks. Provincially regulated credit unions are governed by provincial legislation and all deposits are protected and well insured.
In short, credit unions have all the regulatory controls and safety nets of a federally chartered Canadian bank. If credit unions are such a great option and several organizations give financial backing to them, is becoming a member a complicated process? Let's discuss what it takes to join a credit union.
How to join a credit union
First, you have to have the right documents and legal standing in Canada. If you are new to Canada, credit unions are one place that you can set up your financial life in Canada. If you want to open an account in a bank, all you need to do is prove that you are a country resident and have a source of income. You also need a social insurance number (SIN). This is the case for most commercial banks. The reason is that shareholders and a board of directors control the bank. As a result, the people using a bank's service have virtually no say in how the bank should operate. That is not the case with credit unions.
When you join a credit union, you become a member and an owner. Opening an account with a credit union requires the purchase of a membership share. The cost varies among credit unions but can be as low as $1 and is refundable if you ever choose to close your account. This is why credit unions use the term “member” or “owner” instead of “customer”. Most provincially regulated credit unions operate with a “community bond of association” which means you have to live in the province the credit union operates in to become a member; this is not the case for federally regulated credit unions. If you move out of the province, you can still keep your account.
Credit unions sound good but apart from the governance, a bank offers more or less the same services to its customers. However, in reality, there are several differences between a commercial bank and a credit union regarding ownership, control, interest rates, etc. So let's look at how a credit union is different from a bank.
Credit unions vs. banks
On the surface, a credit union and a bank may seem like they are one and the same. However, the truth is that several things set a credit union apart. Here are some of the differences between a bank and a credit union:
Type of organization
Banks are private corporations, and thus, their main goal is to make a profit. Moreover, a shareholder does not have to be a bank customer to enjoy a profit percentage. However, a credit union works differently.
Credit unions are financial cooperatives which means they are guided by the Seven Cooperative Principles. The main goal of credit unions in Canada is to offer their members the best product and services. Since credit unions are locally owned, any profits are either given away as dividends to the members, reinvested back into the business, or given back to the community as charity or donation. Dividends mean that profit was made.
Because you are a member and an owner at a credit union, you have a say in how the credit union is run. The board of directors is elected from the credit union’s membership base on the premise of “one member, one vote.” It doesn’t matter how much money you have invested in the credit union, all members have an equal say.
Meanwhile, most banks operate through a typical publicly traded company structure wherein the board of directors are nominated and elected by shareholders. These shareholders usually hold one vote for each share they own. This means that larger shareholders can have more significant influence over the company.
If we talk about the products and services the two types of institutions offer, they are more or less the same. Both banks and credit unions provide their consumers and members several services that include debit and credit cards, chequing and savings accounts, and opening TFSA or RRSP. You can even purchase investments through the bank or the credit union’s on-line brokerages.
Credit unions in Canada and the internet
Banks invest a lot of funds into creating a lasting digital presence. The power and functionalities of their web and mobile apps are proof of deep pockets and deep commitment to meeting you where you live online. Their online banking apps alone are a clear sign of this as they allow you to transfer funds, pay bills and view your transaction history.
Canada’s credit unions are competitors in this space as well. Credit unions have been recognized by the Ipsos Financial Service Excellence Awards in many categories. They have taken home awards for Online Banking Excellence for the past seven years.
Credit unions in Canada excel at customer service
Like banks excel in establishing a prominent web presence, credit unions in Canada often surpass banks in customer service. This is not strange to see if we look at the entire purpose of credit unions. The foundation of a credit union is to offer the best services to their members.
This is because a credit union in Canada is run by the members, for the members. On the contrary, a bank’s sole responsibility is to its shareholders. Ipsos Financial Service Excellence Awards highlight the financial institutions that offer the best customer services, and credit unions have been receiving this award for the past 17 years. That is what you call a mic drop.
Resources for financial literacy
Credit unions in Canada are enormous advocates for financial literacy. Most of them offer information and seminars on several important topics, such as how to manage credit cards or prevent identity theft. Banks also provide tools, blogs, and resources on their website to educate users on making more intelligent financial choices.
An example of credit unions commitment to financial literacy is the Each One, Teach One educational program. It doesn't have ties to any specific products or services, and the goal of empowering individuals to make the right financial decisions for themselves and their families. The program is offered by the Canadian Credit Union Association (CCUA) and Vancity Community Foundation, and relies on credit union staff volunteers to promote financial literacy in neighbouring regions.
Credit union and bank products
Credit unions and banks pretty much have the same type of offers, including:
- Business bank accounts
- Chequing accounts
- Certificates of Deposits
- Money market accounts
- Savings accounts
- Construction and land loans
- Auto loans for both used and new vehicles
However, banks do generally offer more specialized products, including trustee services and student loans. If a credit union happens to be smaller, it might not have the resources to accommodate these types of services, though one can still ask. Some may have partnered with service providers so that members can avail these offerings.
Credit unions in Canada and banks, as stated before, have mobile apps and online banking services to manage your account. They both provide features such as making a deposit online, transferring money between accounts, paying bills, and being able to view your account activity. That is what Canadians expect.
Becoming a member of a credit union
Becoming a member of a credit union requires that you provide proof of age, proof of residence, your Social Insurance Number (SIN), and the purchase of membership shares. Members can enjoy certain traits and benefits from a credit union, which is not the case with opening an account in a bank. These benefits include:
- Better interest rate for your savings account
- Lower account fees
- Better mortgage rates
What financial products do credit unions in Canada offer?
People are usually under the impression a credit union would not offer the same services you might get in a commercial bank. That is not true. Following are some of the services that a credit union has to offer:
- Savings and chequing accounts
- Loans for automobiles, homes and home improvement, debt consolidation, etc.
- Debit and credit cards
- Online payment and transfers
- Money orders and safety deposit boxes
As you can see, the services offered are identical to those provided by a bank.
Does the Canadian Deposit Insurance Corporation cover credit unions?
People’s biggest fear is losing their deposits in the event of the collapse of a financial institution. Imagine having $50,000 in your bank account, and the bank shuts down tomorrow; it can be catastrophic for thousands of people. So, to protect the interest of citizens of their country, the government ensures an individual's deposits. It applies to federally regulated credit unions too.
The Canada Data Insurance Corporation (CDIC) ensures that all your eligible deposits are safe, and in case the financial institution does collapse, you can get your money back. Following are the items that are covered under deposit insurance:
- Chequing and savings accounts
- Guaranteed Investment Certificates (GICs) and other forms of term deposits
- foreign currency
There are certain things that deposit protection does not cover. These include:
- Mutual funds
- Exchange-Traded Funds (ETFs)
- Loss due to theft or fraud
Of course, the insurance does not need to be paid separately, and CDIC manages it. Local deposit insurers also protect money in credit unions, trusts, loan companies, and caisses populaires. The following are the deposit insurance corporations as per province:
- Alberta – Alberta Credit Union Deposit Guarantee Corporation
- British Columbia – Credit Union Deposit Insurance Corporation of BC.
- Manitoba – Credit Union Deposit Guarantee Corporation
- New Brunswick – New Brunswick Credit Union Deposit Insurance Corporation
- Newfoundland – Newfoundland and Labrador Credit Union Deposit Guarantee Corporation
- Nova Scotia – Nova Scotia Credit Union Deposit Insurance Corporation
- Ontario – Financial Services Regulatory Authority of Ontario
- Prince Edward Island – Credit Union Deposit Insurance Corporation
- Quebec – Autorité des marchés financiers
- Saskatchewan – Saskatchewan Credit Union Deposit Guarantee Corporation
Credit unions in Canada
Credit unions in Canada have come a long way since the early 1900s. Today, there are 438 credit unions and caisses populaires in Canada. The following are the top credit unions in different Canadian provinces:
- British Columbia: Coast Capital, Vancity, and First West credit union
- Manitoba: Assiniboine, Steinbach, and Cambrian credit union
- Ontario: Desjardins Ontario Credit Union, Meridian, and Alterna Savings
- Alberta: Connect First, Servus, and Vision, credit union
- Saskatchewan: Affinity, Conexus, and Innovation credit union
- New Brunswick: Bayview credit union and UNI Financial Cooperation
- Nova Scotia: East Coast and Credit Union Atlantic credit union
- Newfoundland and Labrador: Newfoundland and Labrador credit union
- PEI: Provincial credit union
- Quebec: Caisses Populaires Desjardins
- Federal: Coast Capital Savings and Caisse Populaire Acadienne Itee (UNI Financial Cooperation)
Four popular credit unions in Canada
Credit unions are spreading worldwide, and Canada is a part of this growth. Among these, there are a few credit unions that stand out. In no particular order, here are some popular credit unions in Canada.
Vancouver City Savings Credit Union or Vancity is a member-owned institute headquartered in British Columbia. The Vancity credit union is the largest in Canada as of 2019 and has a total asset value of $28.2 billion. It boasts 60 branches all over Canada and has over 543,000 members.
Desjardins is the first credit union group founded in 1990. It is the largest group in Canada, serving almost 7 million members. The headquarters is situated in Quebec, and it currently consists of 293 credit unions.
Meridian Credit Union
The Meridian Credit Union is the third-largest credit union in Canada. Headquartered in Ontario, Meridian has total assets of $23.9 billion, making it a huge player in the credit union market. Meridian has 92 branches in Canada and serves 360,000 members.
Coast Capital Savings
Coast Capital Savings Credit Union is one of the largest credit unions in Canada. It is a member-owned financial institution headquartered in Surrey, British Columbia. Coast Capital Savings has a total asset value of $25.2 billion, with 52 branches across the country, serving 535,000 members.
So, are credit unions in Canada better than traditional banks?
The answer is that credit unions are competitive with banks. Are credit unions well-understood in Canada? Maybe not. Here are some things to note:
- Credit unions may offer lower fees and higher saving rates on your accounts
- Since they are financial cooperatives and one of their goals is to help the members, the customer service is often better than that of a bank
- Credit unions can offer a lower interest rate on loans. They also have a more straightforward eligibility criteria to get approved for a loan
- Members of a credit union have more control over how the financial institution is run. For example, all members have voting rights and everyone has the same number of votes when electing a board of directors.
Then, why doesn't everyone belong to credit unions? Credit unions in Canada match banks in almost every aspect. Credit unions in Canada are easy to join except in very few instances.
To note, federally-regulated credit unions have no restriction about who can join; you only need to be a Canadian resident. Because of the Community Bond of Association in place for provincially-regulated credit unions, most provincially-regulated credit unions have no membership restrictions. There are three closed-bond ethnic credit union in Canada, and eleven occupation-bond credit unions, representing 1% and 5% of the total number of credit unions in Canada. These credit union have by-laws to allow a percentage of members from outside their bond to join; they have to be approved by the board or they can join as non-voting members.
Credit unions are community-minded. At the core of every credit union is the desire to give back to their communities and make a positive impact. Credit unions promote financial literacy, support homeownership, provide access to funding and financial rewards and more.
Credit unions are member-owned financial institutions in Canada that offer financial services to individuals and businesses. Credit unions are financial cooperatives that are guided by the Seven Cooperative Principles. Profits benefit their members. Profits made by credit unions are distributed back to their local communities and members, through profit-sharing, and donations to local initiatives.
Provincial legislation usually regulates credit unions, but some credit unions are federally regulated.
There are over 438 credit unions and caisses populaires in Canada, serving 10.6 million citizens.
Credit unions can be regulated both federally and provincially, depending on the credit union. For example, Vancity is under the provincial regulation of British Columbia, whereas Coast Capital Savings is a federally regulated credit union.
Credit unions have been around for decades, and even though the banks and other financial institutions have been growing, credit unions have managed to prosper and grow just the same despite the direct competition.
Credit unions are the answer to large corporate banking systems that are only concerned with their shareholders and give no power to the people. Although the idea of joining a credit union might be enticing, there are several barriers in place. Becoming a credit union member is not simply showing some ID and buying a few shares. There is a lot more to becoming a member of a credit union. These strict requirements are one of the reasons why people are opting for banks rather than credit unions.
That being said, the market has not slowed down, and nearly 1 in every 5 Canadian is a member of a credit union. These people enjoy the benefits of being a member, like profit sharing, easy loan approval, and better interest rates. Will the world completely shift to credit unions, making banks obsolete? It is improbable, but at the rate at which credit unions are being accepted, it will be no surprise to see them grow as the years pass.
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About The Author: Arthur Dubois
Passionate about personal finance and financial technology, Arthur Dubois is a writer and SEO specialist at Hardbacon. Since his arrival in Canada, he’s built his credit score from nothing.
Arthur invests in the stock market but doesn’t pay any fees because he uses National Bank Direct Brokerage online broker and Wealthsimple’s robo-advisor. He pays for his subscriptions online with his KOHO prepaid card, and uses his Tangerine credit card for most of his in-store purchases. When he buys bitcoins, it’s with the BitBuy online platform. Of course it goes without saying that he uses the Hardbacon app so that he can manage all of his finances from one convenient place.
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