Did you know that credit unions represent more than a 1/3 of working-age Canadians?

Credit unions have a history of introducing innovative financial products to Canadians, including HELOCs! They're also known for better rates and kinder customer service—but is this too good to be true? Do we really have options beyond the big five banks?

In this explainer, we'll cover everything you need to know:

• The main differences between credit unions and banks, including rates and regulations
• Pros and cons of each
• How to know which one is best for you

Also — are you a homeowner looking for a loan? Lotly can help! We work with a network of 50+ lenders nationwide to eliminate the pain of searching through countless loan offerings. Based on your financial situation and goals, we'll find the best secured loan option for your needs. Book a free consultation today to learn more.

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6 differences between credit unions and banks

Let's start with some quick definitions:

• A credit union is a non-profit organization owned by its members, who are also its customers. Credit unions offer financial services like checking accounts, loans, and credit cards.
• A bank is a for-profit corporation that offers similar financial services to credit unions but with different rules and regulations.

Let's dive in:

#1. Ownership structure

When we discuss ownership structure, we refer to who owns and controls the credit union or bank.

• As mentioned, a credit union is owned by its members—anyone with an account at the credit union becomes a part-owner of that institution. This means that members have a say in how the credit union operates and voting rights in significant decisions.
• On the other hand, banks are typically owned by shareholders or investors. These individuals do not necessarily have accounts or use the services offered by the bank, but they hold stock in the company and can profit from its success.

Takeaway

For many, the idea of being a part-owner in their financial institution is appealing. It’s an arrangement that aligns incentives in a way that puts the needs of members above the desires of shareholders.

#2. Profit orientation

Another significant difference between credit unions and banks is their profit orientation.

• Credit unions are not-for-profit institutions, meaning they don't have to prioritize making money for shareholders or investors. Instead, they focus on providing affordable financial services to their members and often offer lower interest rates on loans and higher interest rates on deposits than banks.
• Banks are for-profit institutions that must profit to satisfy their shareholders or investors. This can lead to higher customer fees and interest rates to maximize profits. However, banks also have access to a larger pool of resources and may offer more diverse financial products and services.

Takeaway

‍This can impact the fees and interest rates charged to customers. When deciding between banking with credit unions vs. banks, you must consider your own financial goals.

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#3. ATM & branch accessibility

When it comes to branch and ATM accessibility, banks often have a significant advantage.

• Large banks typically have extensive networks of branches and ATMs, both locally and globally. This makes it easier for customers to access their accounts, withdraw cash, or conduct other transactions when traveling or living in different areas.
• Additionally, banks may offer partnerships with other financial institutions, further expanding their ATM reach without additional fees for customers.

On the other hand, credit unions usually have smaller networks of branches and ATMs due to their localized nature.

• However, many credit unions are part of shared branching networks or partnerships like the CO-OP ATM network, allowing their members to access thousands of ATMs and branches nationwide.
• While this helps bridge the accessibility gap compared to banks, availability may still be less seamless — especially internationally.

Takeaway

If easy access to branches and ATMs is a crucial factor (especially as someone who travels frequently), you may find banks more convenient. However, for those who value community-focused financial services, the shared networks offered by credit unions might provide adequate accessibility.

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#4. Membership requirements

One of the key differences between credit unions and banks lies in their membership requirements.

Joining a credit union typically requires you to meet specific eligibility criteria to become a member.

• These criteria are based on shared criteria, including factors such as geographical location, employer, membership in a particular organization, or affiliation with a specific community.
• For instance, some credit unions may only accept members who live in a specific area, work for a particular company, or belong to a professional or religious group. This exclusivity stems from the cooperative nature of credit unions, where members are also part-owners.

Banks, on the other hand, do not have membership requirements.

• Anyone can open an account or apply for services provided they meet standard identification and creditworthiness requirements.
• This makes banking more accessible to a broader audience, regardless of location or affiliation.

Takeaway

‍While credit unions may require potential members to meet specific criteria, their customer-centric approach and possible benefits, such as lower fees and higher savings rates, can make them an appealing choice for those who qualify. Conversely, banks offer greater accessibility by not imposing membership restrictions, catering to a broader population.

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#5. Customer service and satisfaction

When it comes to customer service and satisfaction, credit unions often have a distinct advantage over traditional banks.

• Credit unions are member-focused institutions, and their not-for-profit structure allows them to prioritize personalized service.
• Many customers appreciate the relationship-driven approach of credit unions, where staff often take the time to understand individual financial needs and provide tailored solutions. This personal touch can lead to higher customer satisfaction levels, particularly for those who value community-focused service.

Conversely, banks typically have a larger operational scale and invest heavily in online and mobile services to cater to a broader demographic.

• While this can enhance convenience and accessibility, customer experiences may vary depending on the bank and branch location. Larger banks are sometimes criticized for being more profit-driven, which can result in less personalized interactions.
• However, for customers who prioritize convenience and technological advancements, the digital tools banks offer can significantly enhance the overall experience.

Takeaway

‍Credit unions may be more appealing to those seeking a community-focused, relationship-driven service, while traditional banks may be preferred by those prioritizing convenience and innovation.

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#6. Regulation and insurance coverage

Credit unions and banks operate under different regulatory frameworks, which directly influence how they function and the protections they offer to their customers.  This is a big one, so buckle in:

Regulation

• Banks: In Canada, banks are federally regulated under the Bank Act and supervised by the Office of the Superintendent of Financial Institutions (OSFI). OSFI ensures that banks operate safely and soundly, maintaining public confidence in the financial system.
• Credit Unions: Most credit unions are provincially regulated, with each province having its own regulatory body. For example, the Financial Services Regulatory Authority of Ontario (FSRA) oversees credit unions in Ontario. However, some opt for federal regulation under the Bank Act, supervised by OSFI.

Deposit Insurance

• Banks: Deposits at banks are insured by the Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation. CDIC covers eligible deposits up to $100,000 per depositor, per insured category, per member institution. This includes savings and chequing accounts, Guaranteed Investment Certificates (GICs) with terms of five years or less, and foreign currency deposits.
• Credit Unions: Deposit insurance for credit unions varies by province:
  
  • Ontario: FSRA provides deposit insurance through the Deposit Insurance Reserve Fund (DIRF), covering non-registered accounts up to $250,000 and offering unlimited coverage for registered accounts like RRSP, RRIF, and TFSA.
  • British Columbia: The Credit Union Deposit Insurance Corporation of British Columbia (CUDIC) guarantees all deposits and non-equity shares and provides unlimited coverage.
  • Alberta: The Credit Union Deposit Guarantee Corporation guarantees the repayment of all deposits with Alberta credit unions, including accrued interest, offering unlimited coverage.

Key Differences

• Regulatory Bodies: Banks are primarily federally regulated by OSFI, while credit unions are mainly under provincial jurisdiction, with regulatory bodies varying by province.
• Deposit Insurance Limits: CDIC insures bank deposits up to $100,000 per depositor, per insured category. In contrast, provincial deposit insurance for credit unions often provides higher or even unlimited coverage, depending on the province.

Takeaway

‍Both banks and credit unions in Canada are subject to stringent regulations and offer deposit insurance to protect consumers. However, the specifics of regulation and insurance coverage differ, reflecting their distinct operational frameworks and regional considerations.

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Is it better to use a credit union or a bank?

Short answer: it depends. (Obvious answer, we know).

Don't worry; we have a long answer too, and it depends on you. But first, let's go through some pros and cons of each option in case that helps you decide off the bat:

Bank pros and cons

Pros:

• Wide range of services offered (mortgages, loans, credit cards, etc.)
• Possibility of online banking and extensive ATM networks
• Potential for higher interest rates on savings accounts

Cons:

• Can be more expensive than credit unions in terms of fees and account minimums
• Often have stricter lending criteria for loans and mortgages

Credit union pros and cons

Pros:

• Typically lower fees and account minimums compared to banks
• Community-focused, often offers more personalized service
• May have higher interest rates on savings accounts and lower interest rates on loans

Cons:

• Limited services provided (e.g., credit cards may not be available)
• Smaller ATM networks and potentially less convenient access to physical branches

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As mentioned before, whether a credit union or bank is "better" depends mainly on your individual needs and preferences. Here are some factors to consider when making your decision:

1. Service offerings: Are you looking for a one-stop shop for all your financial needs, or do you only need basic services like checking/savings accounts?
2. Fees and account minimums: If you're trying to minimize fees and avoid high account minimums, credit unions may be the better option.
3. Convenience: Do you prefer an extensive ATM network and online banking options, or are you comfortable with more limited access to physical branches?
4. Interest rates: If you have savings or investments, compare interest rates offered by both banks and credit unions to see which one provides better returns.

Ultimately, the best financial institution for you will depend on your individual financial goals and needs — but you can use these checklists as shortcuts:

Go with a bank if:

• You travel internationally and need access to ATMs abroad
• You want robust online banking and mobile app options
• You're looking for a wide range of financial products, such as credit cards or investment services

Go with a credit union if:

• You want to support your local community and have a say in how the credit union operates
• You prefer more personalized service and value building relationships with your financial institution
• You prioritize lower fees and account minimums over convenience or product offerings.

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Credit unions vs banks for loans (ranked by interest rates)

For illustrative purposes, here's a rundown of personal loan offerings from Canadian banks and credit unions, ranked by interest rates:

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CIBC Personal Loan

CIBC offers personal loans with flexible terms and the option of fixed or variable interest rates. These loans can be used for various purposes, including debt consolidation or major purchases.

• Interest Rate: Starting from 4.39% for a 5-year fixed term.
• Best For: Individuals seeking a reputable bank with flexible loan options and competitive rates.

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Meridian Credit Union Personal Loan

Meridian offers personal loans with fixed terms and competitive interest rates, suitable for various personal financing needs.

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FirstOntario Credit Union Personal Loan

FirstOntario Credit Union provides personal loans with competitive rates and flexible repayment options, catering to members' diverse financial needs.

• Interest Rate: Starting from 4.74% for a 5-year fixed term.
• Best For: Members looking for personalized service and competitive rates from a local credit union.

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RBC Royal Bank Personal Loan

RBC provides personal loans with fixed or variable interest rates, offering flexible repayment options for different financial situations.

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Scotiabank Personal Loan

Scotiabank offers personal loans with competitive interest rates and flexible repayment plans, tailored to meet various borrowing needs.

• Interest Rate: Starting from 6.49% for a 5-year fixed term.
• Best For: Borrowers looking for a major bank with a wide range of financial products and services.

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Keep in mind that interest rates can vary depending on your credit profile and the loan amount. It's always a good idea to check the current rates and terms with the lender.

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Lotly can find the best lender for your financial goals

We've covered a lot here. Let's go over some key takeaways:

• Credit unions are member-owned and prioritize community and affordability, while banks are shareholder-driven with a broader range of services and accessibility. Understand the key differences between them to make informed financial decisions.
• When choosing between a bank and a credit union, consider your financial needs, lifestyle, and priorities. Banks offer extensive ATM networks, robust online tools, and diverse products, while credit unions offer lower fees, personalized service, and better rates for members.
• Regulation and insurance differ, but consumer protection is ensured in both institutions. Banks are federally regulated with uniform deposit insurance, while credit unions often have higher or unlimited provincial deposit coverage and a community-focused operational model.

As a homeowner, it can feel overwhelming to navigate the world of lenders of financial instruments when you're just trying to figure out how to do things like:

• Pay for your truck repair
• Renovate your kitchen
• Buy a new boat for the summer

A home equity loan can often help you manage these projects, but where do you even begin?Luckily, you can take control of your financial journey with Lotly. We work with a network of 50+ lenders (including credit unions!) to find the home equity loan provider best suited to your financial goals and needs. Book a free consultation today to learn more.

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Frequently Asked Questions (FAQs)

How safe are credit unions in Canada?

Credit unions in Canada are regulated and insured, just like banks. They are typically provincially or territorially regulated and have deposit insurance through provincial deposit guarantee corporations. This coverage differs from province to province, but it ensures that your money is protected in case of a credit union failure. 

Additionally, credit unions often follow strict lending guidelines and have strong financial management practices to ensure the safety of their members' funds. If you’re concerned about the security difference between a bank vs credit union, you can rest easy — they’re both safe.

What are the 5 largest Canadian credit unions?

The 5 five largest Canadian credit unions, based on total assets as of September 2024, are:

1. Vancity (British Columbia)
2. Meridian Credit Union (Ontario)
3. Coast Capital Savings Federal Credit Union (British Columbia)
4. Servus Credit Union (Alberta)
5. First West Credit (British Columbia)

How do I become a member of a credit union?

Becoming a credit union member typically involves meeting eligibility requirements and opening an account with the institution. Some credit unions may have specific membership criteria, such as living in a particular community or being part of a specific organization.

However, many credit unions also offer open memberships where anyone can join. It's best to check with individual credit unions for their particular membership requirements and processes.

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