Nowadays, in most cities in Canada, consumers can choose among several banks and credit unions. But you may be wondering whether choosing a bank or a credit union is the best choice for you. In this article we will try to point out the main similarities and differences between the two so that you can make a more informed decision.
Like many financial institutions, banks, and credit unions both make money by lending money at higher interest rates than they pay out on deposits. Another major source of income is through the fees they charge. The main difference between them is that credit unions are owned by their customers, usually known as members, and they are not-for-profit organizations. This means, unlike the banks, their main goal is not generating a profit. Instead, the focus for most credit unions is to improve the financial well-being of their members.
Banks, on the other hand, are for-profit organizations that are owned by stockholders. The main purpose of the bank, like other for-profit companies, is usually to generate as much profit as possible for its stockholders.
Most of the standard products needed by consumers, are available from both banks and credit unions. These include checking accounts, various savings accounts, credit cards, business bank accounts and loans.
However, it is more likely that a bank would offer more specialized products. These may not be available from credit unions, which are typically smaller in size and resources than the banks. If you are likely to need any specialized products or services and you are considering a credit union, it would be a good idea to ask if the credit union can offer it to you before you decide to join. Even if they do not offer these directly, they may have partnerships with service providers that allow them to provide these services to their customers.
These days, both banks and credit unions also offer online banking services and mobile apps designed to manage your account. As banks normally have larger resources available to them, you may find they are slightly ahead of credit unions when it comes to the technology they offer their clients for online banking.
As mentioned, the focus of credit unions is not to maximize profits. For this reason, you may find that credit unions in general offer more attractive rates and fees to their members compared to bank rates. However, it is important to enquire about the rates and fees on the products you are most likely to use before you decide with institution to join. Not all banks and credit unions are the same and there could be big differences between the fees and rates from one institution to the next.
The Canada Deposit Insurance Corporation (CDIC) is a federal Crown Corporation created by Parliament in 1967 to provide deposit insurance to depositors in Canadian commercial banks and savings institutions. CDIC insures Canadians’ deposits held at Canadian banks (and other member institutions) up to $100,000 in case of a bank failure. CDIC automatically insures many types of savings against the failure of a financial institution. However, the bank must be a CDIC member and not all savings are insured. You can check here to find out if the financial institution you are considering is a member of CDIC.
If the ownership of the institution is not a concern for you then the decision would come down to the products and rates offered by the individual institution you are considering. Other factors you may want to consider is the branch and ATM network of each institution.
Banks typically run a larger network of branches and are therefore more likely to have a branch close to where you may need it. However, if you live and work within your local community this may not be a major consideration. Also, as online banking becomes more prevalent, the importance of branch networks is likely to become less and less as you can bank from anywhere for most banking needs.
Finjoy Capital is not a financial advisory firm.
This article is for informational purposes only and is not a substitute for individualized professional advice.