You’ve most likely heard of both banks and credit unions, but have you ever really stopped to consider what the difference is between the two?
“The cornerstone of your ability to make good financial decisions is to become as financially literate as you can. That means proactively learning about financial products and services to make sure that you have the options that will give you the most benefit,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Credit Union vs. Banks
Credit unions and traditional big banks are similar in that they both offer many similar financial products, like savings and chequing accounts, credit cards, mortgages, business loans and investment and retirement products.
Unlike traditional financial institutions, which are run as corporations with shareholders and executive boards, credit unions are owned co-operatively. What that means essentially, is as a customer you are a member of the credit union. And as a member, you are able to voice your opinion through voting. The Executive isn’t appointed, but elected from the members. You don’t really have a say in your bank unless you are a shareholder.
Credit unions tend to be more community based and are often developed out of reaction to a particular need in a community; for instance, rural communities tend to have credit unions that specialize in agricultural loans and financing. Banks are corporations that are run from head offices, with branches all over the country, so are less personalized to a community or group.
Both credit unions and banks offer insurance protection against your deposits (i.e. accounts, shorter term GICs etc) but they differ in how much and in who manages the regulation. For the most part, your money in a bank is insured through the Canadian Deposit Insurance Company (CDIC). Credit unions are typically covered through provincial bodies, so check with your local branch.
With both credit unions and banks you are looking at paying fees, but they vary and cover different things. For instance, you pay a membership fee usually to belong to a credit union. At a bank, you may pay service charges on your credit card or chequing account.
Pros and cons for credit unions and banks
“One of the drawbacks for credit unions is that they are smaller on scale than big banks, so have less ATMs available, depending on where you live. Access to your money is potentially an issue. If you tend to visit the ATM often, you could end up paying hefty fees for withdrawals that can eat away at your budget,” says Schwartz.
The other issue is that credit unions are membership based, so there are criteria in order to join them. Everyone isn’t eligible. There are credit unions specifically for different geographic communities, but also for some professions (i.e. teachers, civil servants) or associations.
A pro for credit unions is the treatment of profits. A bank is a business that is intended to generate profits. Credit unions are not-for-profit. In the event that they generate profits, that money is used to improve operations or to benefit its members. In some cases, because of their non-focus on profits, they can offer lower interest rates on credit products for people that qualify.
One checkmark for banks are advances in technology. Banks have more resources on hand to invest in tech, which is partly why banks tend to have more cutting edge technology. If you deal with your finances digitally, this is a consideration. While credit unions do offer apps and other technology, you tend to have more choice with the banks.