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What Is a Credit Union? The Pros and Cons vs a Bank

What Is a Credit Union? The Pros and Cons vs a Bank

In recent years, there has been a lot of backlash against banks over fees and practises that has left Canadians looking for a place to keep their money that isn’t associated with big banks.

One of the options you have is to choose a credit union. Credit unions are different from banks, and some even think they are superior to banks. If you are looking for an alternative to banks, a credit union might be a good choice. Plus, as an added perk, many credit unions offer lower car loan and mortgage rates than you will see at banks.

What is a Credit Union?

In the early 20th century, it was hard for “regular” working folks to get access to banks. Many tradespeople, teachers, and others struggled to build relationships with banks. Some decided to pool their resources to some degree. Credit unions are cooperative financial institutions that are owned by their members. It’s possible for you to sit on the board of your local credit union, and attend meetings and vote. This is rarely the case when you take your money to a bank.

Credit unions offer a range of services that you are familiar with through banking. These services include chequing and savings accounts, as well as loan and credit services. You can usually also get credit cards and debit cards through credit unions. Many credit unions also have people who can help you with investment and retirement products.

It’s also important to understand that a credit union is a not-for-profit organization. This means that, unlike a bank, the point isn’t to make a profit. It’s true that executives and tellers and loan officers need to be paid, but credit unions aren’t looking for extra money designed to go to stockholders or to hoard money for profits down the road. Instead, all of the money is meant to be used to further the operations of the credit union and benefit its members.

The fact that the credit union has a local board is also an important distinction. The board directs policy and helps figure out next moves for the credit union and its members.

Credit Union vs. Bank

One of the biggest differences between a credit union and a bank is the non-profit nature of a credit union. Because a credit union is non-profit, it can often offer lower mortgage rates and other interest rates. You can get a credit card, just as you would through a big bank, but you might not have to pay the same interest rate on the balances.

In order to join a credit union, however, there are certain membership requirements. You don’t have these requirements with a bank. As long as you can meet any minimum deposit requirements, and you are willing to pay any maintenance fees, you can keep your money in any bank.

Credit unions, though, were originally designed to help specific segments of the community. You need to meet membership requirements, like being a teacher, or living in a geographic area, or working for a company, or being a part of a civic organization. These membership requirements have been expanded in some cases to cover more people, but you do need to meet some sort of membership test in order to join a credit union. It comes from the roots of being a cooperative designed to help a specific set of people.

In many cases, you will also be required to maintain a “share” account, in which you deposit a small amount of money as part of your membership fee to join. This amount is usually very small, on the order to $25 or $50, and you don’t have to worry about maintaining any other minimums.

In many ways, though, the credit union vs. bank question is one of convenience. While many of the products and services offered by both are the same, a credit union might be less accessible. Because a credit union is restricted to a smaller geographic area, you might worry about access to your money when you aren’t at home.

The good news is that you can still usually get to your funds. First of all, credit and debit cards from credit unions are usually branded with Visa or Mastercard, so they can be used anywhere. On top of that, The Exchange Network offers you access to a network of ATMs that won’t charge you extra. If you belong to a credit union that is part of The Exchange Network, you can use those ATMs “ding-free”. If you know you are travelling, check to see where these ATMs are, and use them. It’s the second largest ATM network in Canada next to BMO, so it’s very accessible.

You are likely to see lower interest rates on all sorts of loans, including mortgages, because of the way credit unions are taxed. Their non-profit status grants them some tax benefits that banks don’t have, and because they aren’t trying to make a profit, those savings are passed onto members.

One of the downsides to a credit union vs. bank is that sometimes credit unions are slow to adopt technology. They don’t have the resources of a large organization to make those changes. However, many are catching up in the area of technology, thanks to networks and cooperatives designed to give credit unions access to more resources.

How to Find a Credit Union

If you’d like to look into a credit union near you, the Canadian Credit Union Association has a credit union finder. I’ve also compiled a list of some of the larger credit unions available:

Credit UnionProvince
Vision Credit UnionAB
Servus Credit UnionAB
Connect First Credit UnionAB
Prospera Credit UnionBC
BlueShore FinancialBC
First West Credit UnionBC
Coast Capital SavingsBC
VancityBC
Cambrian Credit UnionMB
Assiniboine Credit UnionMB
Steinbach Credit UnionMB
FirstOntario Credit UnionON
Alterna SavingsON
Libro Credit UnionON
Meridian Credit UnionON
Member Savings Credit UnionON
Innovation Credit UnionSK
Affinity Credit UnionSK
Conexus Credit UnionSK

Not All Banks are Bad

One of the great advantages of credit unions is the community associated with them. You can be involved in the board and the running of your local credit union. However, that doesn’t mean all banks are bad. Many banks offer great perks by operating on a small basis. Tangerine , Simplii Financial, and EQ Bank can be great choices for banking, and they are nationwide and offer great perks that you won’t find at the major banks, or even at some credit unions.

In the end, it’s a good idea to research your options. Don’t feel like you have to go with a big bank just because of the size. Credit unions are continuing to evolve and can save you money.

Comments

  1. JUDITH FLIPPING

    THANKS TOM
    VERY INTERESTING, I HAVE HAD ENOUGH OF BANKS. I DEALT WITH ONE IN ROCKY MOUNTAIN HOUSE AB AND WAS VERY PLEASED WITH THEM BUT WENT TO SCOTIA WHEN I MOVED TO BC. IT IS LIKE WORKING IN THE DARK AGES. MADE THE FIRST SWITCH YESTERDAY AND WILL GET ALL MY BANKING WITH THEM IN THE NEXT FEW MONTHS.
    DO YOU HAVE AN OPINION ON THE INVESTMENT SEGMENT OF THE CREDIT UNIONS.?
    THANKS

  2. Andrew Brooke

    Great article!

    I joined the Estonian Credit Union awhile ago (and I’m not even Estonian!)

    They offer no fee personal and business banking accounts. There was just a one time $50 set up fee and then you have to buy 1 $20 share for each account you’re opening, so the grand total to join was $90. But that’s it – you’re fee free – even cheques are free. When consider how much banks charge for business accounts and cheques, it pays for itself in a very short time.

    https://www.estoniancu.com/

  3. Jean

    Credit unions also offer some very good savings rates, and some of them are even “virtual”, so you can join from wherever you are. I live in Ontario and belong to a Manitoba credit union where I have savings account that gives me 1.75%. What bank gives that? I also have an ATM card usable at the network you mentioned, and can link my credit union account to my regular bank (which I’m step by step moving away from) so that I can switch money back and forth as needed.

  4. Andrew

    Jean: Re: “…I have savings account that gives me 1.75%. What bank gives that?”

    EQ Bank gives 2.25% and Zag Bank is finishing up a promotional rate of 2.5% which unfortunately ends this month. 🙁

  5. RK

    I have been a credit union member for many years in Ontario. Once I educated myself I realized my credit union financial advisor had advised me to buy high MER mutual funds, and I had unknowingly done this for many years. After educating myself I realized I was a perfect candidate for ETFs and LOW fee mutual funds. I am very disappointed with my credit union about this, and even more disappointed in that they danced around the issue when I drew this to their attention. They aren’t transparent enough about how their financial advisors get paid. I would expect banks to sell me high MER products, but my credit union? So my advice is just because it is a credit union, it doesn’t mean that staff are always acting in your interest.

  6. DC

    All financial institutions are business’s (they all exist to make a profit) It is up to individuals to do there homework in finding the best products/services. Regardless who you deal with ask questions.
    What is great about dealing with our Credit Union in Alberta (Servus) is that the membership (shares) is not a fee but a investment. Many people are not educated on how shares actually work. Members at Servus can contribute up to 20,000 in shares (regular or rrsp). Interest earned on shares have always been higher than any guaranteed posted rates. Being a member of this credit union the profits are shared with their members (unlike banks) allocation is paid on interest earned & interest paid. We don’t pay service charges on our account. They also have the best no service fee accounts for youth, students & seniors. Debit cards & credit cards can be accessed from anywhere in the world. Would rather deal with more money in our pockets than worry about them being behind in technology.

  7. Travis

    I would always go with a credit union over a bank if I wanted to do business in person. They generally have more helpful customer service staff and don’t try to put you in annuities every five minutes.

  8. Amanda

    Not only is banking at a credit union a smart idea when it comes to saving money each month, but they offer all of the sames services as a big bank, with the added bonus of amazing customer service. Member Savings Credit Union (listed in the above article) ensures that we stay on top of the latest banking trends in technology and provide our members with a personalized banking experience. Our profits go back into the hands of our members every year!

  9. Ruth Gibson

    I seem to remember something about chartered banks being financially “insured” or guaranteed against losses while a credit union isn’t. Or the amount you are guaranteed to be reimbursed is minimal if there is a financial meltdown.
    is this still how it works? And are all credit unions protected under law there same?

    • Frank Scott

      I was a member of the Toronto Board of Education Staff Credit Union for many years while I was teaching. At that time deposits were insured up to a $30,000 limit with Credit union Central, not CDIC as are banks. I had significant deposits there in my family members’ names. One day the GM of the said Credit Union suggested that I combine my deposits over the insured limit, which immediately unsettled me.

      Shortly thereafter I visited the office of the Credit Union and found the doors locked. It appears that the GM and her daughter disappeared with a substantial amount of the CU’s deposits. I eventually did recover my deposits, but the officer that Credit Union Central placed in charge of the defunct TBESCU at first refused to pay any interest on the deposits – eventually I recovered all my funds but the was some lip biting involved before doing so.

  10. betty bardswich

    People here in Mindemoya are very upset that the Northern Credit Union branch is closing after only a few years. First they closed the one in Gore Bay and now ours. I also have a problem when people are saying they don’t pay service fees. I pay $4.95 on each account at the Ukrainian Credit Union here in Sudbury Ontario. Plus, it takes $150 to join. We are only there because my husband opened an account with them when he was 8 years old. That was 50 years ago. When my dad was the Superintendent for two mines in Northern Ontario, he was taken to task by his superiors for being a founding member of the Levack-Onaping Credit Union. My dad said he didn’t really care what they thought. lol

  11. Jean Arsenault

    Im a memeber of the credit union now had a saving account at bank of Nova Scotia and they charged me a service fee every month so was costing me money not saving so closed it and put the money in the credit union

  12. Bob Lin

    Deposit protection (e.g. for your 5-year GIC ladder) is.protected to:

    $100,000 at a bank.

    Unlimited at a Credit Union in Manitoba (check the coverage in your province as it may be different).

  13. AD

    I’ve been with credit unions most of my life and prefer them to regular banks. The service is more personal and friendly, you’re not just a number to them. Their fees are low or non-existent for many things. Some offer profit-sharing unlike the banks. Their rates are better than the banks. And your funds are insured, depending on which province, for various amounts. In Manitoba, insurance is unlimited. Highly recommend credit unions. I believe the big banks gamble with their customers’ money and are corrupt. Look how many of them had to be bailed out in 2008, including some in Canada which was not publicized at the time. With the new “bail-in” provisions in Canada now, if banks get in trouble they can take funds directly from their customers’ accounts to save themselves, unlike in the past when the taxpayers were on the hook. I trust the credit unions much more.

  14. VC

    Contrary to the reviews above I have had one experience with Kawartha Credit Union and it was one I never want to have again. Jaw dropping in terms of professionalism and knowledge of what they were doing. Big bank service was much more knowledgeable and responsive. Count me out.

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