When it comes to credit unions vs banks, you may not realize the subtle differences between the two. Both banks and credit unions can offer a suite of products and customer service to their clientele. However, the offerings differ vastly between the two types.
“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.
If you’re pitting a credit union vs banks, learn more about your potential to save money and credit building before picking an establishment
The Difference Between Credit Unions and Banks
Profit & Non-Profit
An advantage for credit unions is the treatment of profits. Banks are for profit businesses. Credit unions are not-for-profit. In the event that they generate profits, that money goes 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 who qualify.
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.
Members elect the Executive by 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.
Because credit unions are membership-based, there are criteria you must meet 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.
With both credit unions and banks, you pay 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. Before creating an account with either, take into account any fees or service charges.
“One of the drawbacks for credit unions is that they are smaller in scale than big banks, so have fewer 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.
Depending on the bank account features, members may get decent rates on loans, but they often offer higher interest rates than those of credit union offerings.
Products and Services
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. They may also offer credit score monitoring or better rates on loans.
One checkmark for banks is technological advancement. 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 choices with the banks.
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 typically have coverage through provincial bodies, so check with your local branch.
Customer Retention and Service
Many big banks have a reputation for not having their clients’ best interests at the forefront. Conversely, credit unions have historically scored well in customer satisfaction. In recent years, big banks have made service a priority, though it is hard to say which organization outperforms the other in this area.
Choosing a bank or credit union is an important aspect of how you manage your money. Knowing about the establishment and the benefits you’ll experience is not to be taken lightly.
Could you use help with your financial literacy? Visit our debt learning centre for an assortment of financial resources. For more information about how to tackle your debt, call us at 1-888-294-3130 or start with our online debt analysis.