What is The Difference Between a Bank and a Credit Union in Canada?
When it comes to keeping your money stashed in a safe place and taking advantage of financial products, the local big banks tend to be the go-to source for many Canadians. Yet while banks certainly do serve their purpose, they are not the only financial institutions available for consumers to do their banking.
Credit unions are also popular institutions that offer Canadians many of the same types of financial products and services. That said, there are specific differences between the two that consumers should know about before they choose which entity to entrust with their money.
Profit Versus Non-Profit
Banks are for-profit organizations. Every transaction that is made with a bank is done for the purpose of making a profit in addition to providing a service to customers. All earnings are paid back to members and stockholders. Banks essentially make money by lending funds at interest rates that are higher than the cost of the money loaned. In particular, banks make money in interest from loans and interest payments from securities they own.
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Credit unions are not-for-profit institutions. They don’t earn money in the same way that banks do. They do not exist to make a profit, but rather they operate to serve their members. Credit unions don’t pay dividends to outside stockholders as is the case with banks.
Big banks are overseen by the federal government, which is also tasked with monitoring foreign banks that operate within Canada. Banks are legislated by the Bank Act.
The majority of credit unions are governed by their respective provincial governments that stipulate how they’re permitted to borrow, lend, and invest. While credit unions are member-owned, some are members of the Canadian Credit Union Association. Credit unions are also legislated by the Bank Act.
There is no real difference between the types of customers that are served by banks versus credit unions. Any Canadian who has the appropriate identification is eligible to open up an account at either financial institution.
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That being said, consumers should understand that credit unions tend to have stricter rules regarding who can be serviced at particular locations. Typically, credit unions only serve those who are located within a specific geographical area. Credit unions are typically located in more rural areas and communities that are not well served by bigger banks.
Membership at credit unions typically requires the purchase of a share and the ability to meet certain requirements. As a shareholder, members are given the power to vote if there is ever an issue regarding how the organization is being operated. Members will also have the benefit of getting dividends every year from the shares owned. At banks, shareholders are typically investors, not members or necessarily bank customers.
Credit unions and banks don’t differ very much in terms of the types of accounts that members can open. Products such as savings accounts, checking accounts, loans, mortgages, credit cards, wealth building, retirement, and investment products are all offered at both types of institutions.
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However, banks tend to offer a wider variety of account and product types compared to credit unions. In addition, they tend to be more focused on commercial loan products and others that are more likely to bring in a sizable income. On the other hand, credit unions are more focused on smaller consumer loans.
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Credit unions have boards that are made up of volunteers who have been voted in by members. That means actual customers of a credit union may be on the board. On the other hand, board members at banks are appointed and paid by shareholders.
Sharing of Resources
With big banks, resources are rarely, if ever, shared amongst each other. Every banking institution will have their own ATM machines and services that are to be used exclusively by their own members and customers free of charge (though others may use ATMs for a fee), and no resources or information is ever shared amongst each other.
Credit unions are more cooperative in nature and tend to share their resources and work together. Members are allowed to use the services and machines of other credit unions, no matter the location, free of charge, provided they’re part of the same financial institution.
Large banks are typically on board with the latest in banking technology and tend to offer many convenient online and mobile app services to clients. Banking apps can be used on tablets and smartphones, so clients can do their banking on the go wherever they happen to be.
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The same can be said for credit unions. In fact, credit unions offer the same level of innovative technology to their members that is comparable, if not better than what traditional banks have to offer.
The fees that banks charge their clients are usually higher than those charged by credit unions. This is especially true of the larger banks in the country.
There are many traits of both banks and credit unions that are similar, but there are other characteristics that differ. The choice you make between working with a bank or credit union ultimately comes down to your unique needs. At the end of the day, you want to work with a financial institution that is able to provide you with the type of services you require.