Credit Unions vs. Banks in Canada: Which Ones Should You Bank With?
There are more than 40 banks and 210 credit unions and caisses populaires operating in Canada today. While they are both financial institutions providing banking solutions to their customers, however, there are fundamental differences between credit unions and banks.
Whether it’s their ownership and governance structures, values, user experience or regulation, the differences and similarities between credit unions and banks are manifold, which we will explore today.
By the end, you should be able to have a clear understanding of the distinction between credit unions vs. banks and decide which one might be able to suit your needs best.
What is a credit union?
A credit union in Canada is a member/customer-owned financial cooperative serving a specific geographic area or demographic. A credit union offers bank accounts, credit cards, mortgages, and investment vehicles just as a regular bank does, but it has fundamentally different governance, ownership and value structures.
Credit unions are not-for-profit financial institutions. They are not traded on a stock exchange and don’t focus on stock price. Instead, they have the primary objective of serving their community.
Each individual wanting to open an account must buy at least one share of the credit union (usually around $5-$20), effectively making them a shareholder. Each member influences the governing of the organization. Every member gets an annual dividend or benefits in the form of (relatively) high-interest rates on their deposits.
As a result, credit unions are rooted in the needs of their communities. While they also value profits, they operate on a smaller scale than banks (usually on a provincial basis, though they may also serve, say, the firefighters of a specific municipality) and are usually much more value-driven in comparison.
As of 2022, credit union assets in Canada (excluding those in Quebec) total more than $302 billion and show strong growth across most provinces. It might be safe to say that the credit union movement is not slowing down anytime soon.
Federal vs. provincial credit unions
As mentioned above, most credit unions operate locally, serving a geographical location or a certain demographic. This is in line with the founding principles of credit unions, also known as caisses populaires. Almost all credit unions in Canada are considered “provincial credit unions” and are governed by the governing financial bodies of their respective provinces.
As of 2012, however, there is a framework in place introduced by the Government of Canada that allows provincial credit unions to apply to become “federal credit unions” (FCUs). An FCU continues to operate on a cooperative basis (i.e. is owned by its members). However, it can operate as a bank does, going beyond a certain geographic area and operating nationally if they wish. Coast Capital is one example of an FCU in Canada. Based in British Columbia, Coast Capital serves Canadians accross the country, with the exception of Quebec residents.
One major difference between a federal and provincial credit union is the insurance on member deposits. While provincial credit unions have deposit insurance provided by provincial insurers (covering up to 100% of a member’s deposits), banks and FCUs have coverage under Canada Deposit Insurance Corporation (CDIC), which guarantees up to $100,000 per category.
To understand what this means, let’s say a member has $150,000 in chequing/saving deposits at their provincial credit union. If that credit union becomes an FCU, their deposits would first go into “transitionary coverage” for 180 days and then have the regular CDIC coverage afterwards, which is for $100,000. The remaining $50,000 balance, which would have been covered when the credit union was a provincial one, would now be uninsured and can’t be recovered in the case that the FCU goes under.
Credit union vs. bank in Canada: Key similarities and differences for users
Now that we’ve covered what credit unions are, we can get to the details of the similarities and differences between credit unions and banks. By the end, you should be able to decide which one might be best suited for you and your financial needs.
Credit union governance and ownership
Chartered banks are privately owned, for-profit and governed by the federal Bank Act. They are owned by their stockholders, who are investors in the company and primarily interested in the return on their investment. Those with more shares naturally have more influence on the company, and the primary goal of the organization is to turn a profit.
Provincial credit unions, on the other hand, are community-owned, not-for-profit financial organizations regulated by provincial institutions. Each member must first buy at least one share in order to be served by the credit union, in addition to fulfilling the credit union’s member criteria.
For instance, Vancity is Canada’s largest credit union by assets and is located in BC. An Alberta resident can’t become a Vancity member because they do not fulfill Vancity’s BC residency requirement, the same way a BC resident can’t sign up for Alberta’s Servus Credit Union. This is what keeps credit unions rooted in community while allowing them to cater their products and services to a certain demographic.
Each member has equal voting power when it comes to choosing the board of directors of a credit union and other important matters that need votes. The profits of credit unions go back to the members as dividends each year, as well as to organizations in the community that are doing work that aligns with the values of the organization.
Credit union products and services
Both credit unions and banks offer various financial products to their customers, whether it’s personal banking or business. Banks tend to offer more options for chequing accounts thanks to their sheer size and capacity, but you’ll likely find better fees and rates for both chequing and savings accounts at credit unions.
Beyond the banking basics, both banks and credit unions also offer credit cards, mortgages, loans, and investment options, such as term deposits and mutual funds. While you may find more variety at banks, credit unions tend to offer fewer but more specialized products, mostly because they are familiar with what their member base needs. When it comes to insurance, both credit unions and banks have certain restrictions in place for sales and offerings. In general, provincial credit unions can sell insurance within their branches, but banks can’t.
Credit union fees and interest rates
On average, credit unions have lower fees for their products, such as chequing accounts. They also offer higher interest rates on their savings accounts and term deposits and, more favourable, lower rates on their loans and mortgages.
In some cases, though, credit unions can’t compete with some of the promotional rates of big banks, such as on mortgages, due to their smaller size. As big banks serve significantly more people, they are able to pull off more favourable promotional offerings in order to attract more customers.
It’s common to read that credit unions are more traditional in their offerings, but that’s not always the case. Take, for instance, Vancity’s transportation loan to support their members in buying electric or hybrid vehicles or their credit-check-free Fair & Fast Loan to provide quick cash for those who would normally go to payday lenders. By knowing the needs of their community, credit unions are able to innovate and cater to their demographic really well, and that’s their advantage.
Both credit unions and banks offer investment vehicles beyond term deposits, such as mutual funds, exchange-traded funds (ETFs), and wealth management services. The fees for these services vary and are sometimes provided in partnership with third-party brokerages.
Credit union deposit guarantees
Whether you bank with a credit union or a federally registered bank, you have some sort of insurance on your deposited money. This means that in the (unlikely) case that the financial institution you bank with goes under, your money is insured, and you can get it back.
Where credit unions and banks differ when it comes to insurance, however, is who provides that insurance and for how much. Banks (and federal credit unions I mentioned above) are insured by the Canada Deposit Insurance Corporation (CDIC), a Crown corporation created by parliament in 1967. CDIC provides insurance up to $100,000 per category of deposits.
Provincial coverage protects your deposits in a credit union. This tends to be equal or greater than the coverage provided by CDIC, depending on the province. In Ontario, for instance, eligible deposits are insured up to $250,000 through the Financial Services Regulatory Authority (FSRA). In BC, the Credit Union Deposit Insurance Corporation (CUDIC) insures 100% of your deposits and non-equity shares at all registered credit unions.
However, if your credit union changes from provincial to federal, your deposits will go through a 180-day transitionary period before being insured by CDIC. This may mean that you lose some of the insurance on your deposits. You should consider your options carefully to ensure your money is not at risk.
Credit union user experience and locations
On a day-to-day basis, both banks and credit unions aim to serve their customers’ financial needs. Of course, there are differences between them when it comes to user experience.
The first has to do with branch locations and quantity. This is important for people who still conduct their banking in person. Because credit unions serve local communities, they do not have branches across the country as certain banks do. If you travel between provinces and consistently need the help of a teller to conduct transactions, the lack of cross-Canada credit union branches might be an issue.
If automated teller machines (ATMs) are enough for you to get by, then credit unions actually provide a great solution to their lack of national branches. As a part of THE EXCHANGE network, all credit union members across Canada have access to more than 2000 surcharge-free ATMs from coast to coast, which is fantastic. And, of course, you also have access to telephone banking with both options.
Some other important factors when it comes to user experience are customer service, security and technology (i.e. website, mobile app, and their features). Credit unions excel at customer service. Banks might be more advanced with their tech, especially since they have significantly more resources to spend on it. Banks and credit unions are regulated federally or provincially. They are equally safe.
Credit union values and commitments
Credit unions tend to be significantly more value-driven in comparison to banks. This is presumably a result of their not-for-profit nature. It also has to do with their commitment to serving the needs of their members and community.
Servicing their community usually allows credit unions to be quite innovative when it comes to their financial products. They tend to offer great fees and rates while also providing excellent and specialized customer care.
As profit-driven organizations, you see less community work and commitment to environmental and social justice matters by banks. If you’re unsure about the power of banks in doing good, you can research the topic. With information, you can consider whether there your bank aligns with your values.
Should you bank with a credit union or a bank?
Choosing a credit union or a bank has to do with your needs and wants related to your banking. Here is a comparison table to help you understand the differences between the two a little better.
|Canadian Provincial Credit Unions
|Governance and ownership
|Not-for-profit, member-owned and governed
|For-profit, stockholder-owned, private
|Value and community-driven first, profit second
|Products and services
|Full-fledged, less variety, more specialization
|Full-fledged, more variety
|Fees and interest rates
|Great (lower fees and higher interest rates on saving accounts and term deposits)
|Good (higher fees and lower rates on saving accounts and term deposits)
|Up to 100% (depending on the province)
|Up to $100,000 per eligible category (through CDIC)
|Branch and ATM access
|Limited branch access (only province-wide access)
Country-wide ATM access (through THE EXCHANGE network)
|Country-wide branch access
Country-wide ATM access
|Technology/user experience on mobile app/desktop
Purchase of at least one share ($5-$20)
A clean financial record
|A clean financial record
All in all, I’d recommend a credit union. It has fantastic customer service, relatively better fees/interest rates and financial products that fit you and your community’s needs. It offers increased insurance on your deposits. Plus, it is an institution that values you, your community and the environment, as opposed to just profits.
Alternatively, a bank might be the better option if you’d like branch access across the country. It’s also a good choice when it comes to products such as credit cards and bank accounts.
Final thoughts on credit unions vs. banks in Canada
If this post has been helpful for you in choosing between a credit union vs. bank, that’s great! We’re glad it’s been helpful. The next step is to apply for an account at either institution.
If you’re torn between the advantages of credit unions and banks, you can go with both and maximize your benefits. With online banking on the rise, it’s easier than ever to utilize different financial institutions for your various banking needs.
Frequently asked questions about credit union vs. bank
The main difference between a bank and a credit union is their governance and ownership styles. While a bank is a for-profit organization owned by its stockholders, a credit union is a non-profit cooperative that is owned by its members.
Another key difference is that a bank can operate nationwide in Canada, scaling its operations and serving thousands, if not millions, of customers along the way. Credit unions are local organizations that serve a specific area or demographic. As such, they are smaller in scale and work both for and with their communities for financial well-being.
Both banks and credit unions offer various financial products to their customers, such as bank accounts, credit cards, loans, investments and insurance. They are both regulated by the government and must disclose their performances annually to their shareholders. Both banks and credit unions have branches and telephone support to serve their customers, as well as mobile and desktop banking solutions.
Whether or not credit unions are better than banks has to do with your personal banking preferences. If you favour personalized customer service, values-based banking, better fees and rates, and (up to) 100% deposit insurance, then credit unions are your best bet.
If you prefer banking somewhere with substantial market power, more variety in product offerings and a wider range of branches across the country, then a bank might be better for you when compared to a credit union. Either way, both options are very safe and regulated provincially and federally.
Depending on the province, your deposits in credit unions may be “safer” (i.e. insured up to a higher amount) in comparison to banks. Banks and federal credit unions in Canada are insured by CDIC, an organization that provides a guarantee on up to $100,000 of your deposits in each eligible category in the case that your bank goes under.
Credit unions, on the other hand, are insured by provincial institutions that cover up to 100% of eligible deposits. Coverage changes in each province, but all credit unions have deposit insurance that is equal to or greater than the insurance provided by CDIC.
No, a credit union is not a bank. While both credit unions and banks offer banking services, credit unions are owned by their members, while banks are owned by stockholders. You do not have to buy a share in order to open a bank account at a bank, but you do in order to be served by a credit union. A share might cost anywhere between $5 to $20, which you will get back if you ever decide to close your account. Both credit unions and banks are considered to be financial institutions.
Absolutely. Transferring money between a credit union and a bank is no different than transferring money between two banks. Some options for transferring money between the two include Interac e-Transfer, cash/cheque deposit, or wire transfer.
No, Toronto-Dominion Bank is not a credit union. It is a multinational banking and financial services corporation. The company is headquartered in Toronto, Ontario and found on the Toronto Stock Exchange under the ticker “TD.”
Tangerine is a bank, not a credit union. A subsidiary of Scotiabank, it is one of the leading digital banks in Canada and has no physical branches. Tangerine is known for its no-fee chequing account and credit card.