When you think of banking in Canada or possibly a financial transaction, the most likely thing to come to your mind would be one of the Big Six banking institutions of Canada, namely the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia or the Scotia Bank, Bank of Montreal, Canadian Imperial Bank of Commerce and the National Bank. What has mostly been overlooked and needs to be explored is the viable alternative of joining a credit union to avail of the same traditional banking services!
What is a Credit Union in Canada?
The first Credit Union was formed in Quebec in the 1900s and was known as The People’s Bank (Caisses Populaires). Credit Unions have come a long way since then and gained popularity over a period of time. Today, there are more than 1600 credit unions in Canada, with a few hundred to a few thousand members. Some of the biggest credit unions that you may have come across or known are Vancity, Coast Capital Savings, Meridian Credit Union, Servus Credit Union, First West Credit Union, Affinity Credit Union and so on.
Credit unions function as co-operatives as they bring together members who share a common interest like the same employer, community, faith, industry or anything that binds them together. Its customers are its members, and a credit union’s biggest draw factor is that, unlike a traditional bank, it does not strive for profit. It is a non-profit organization.
Some interesting facts about Credit Unions in Canada:
Did you know that Credit Unions were the first financial institutions to lend to women and that too in their own name, way back in the 1960’s itself? They were also the first to offer daily interest savings, open mortgages, cheque imaging services and many more.
So,what are the major differentiating factors between the traditional banks and Credit Unions in Canada?
While both banks and credit unions offer common financial services, there are certain subtle differences between both the institutions. Let us take a look at what makes them stand apart from each other:
1. Primary Motive of the financial institution:
The primary motive for a bank is to earn profit and make banking a profitable experience for its customers. All the services provided by banks are aimed at generating enough revenues to achieve this agenda. Credit unions have the motive of “Member First,” which means that once you become a member, your satisfaction is their first priority. Credit Unions are known for their excellence in the services they provide. Credit Unions do not have to strive for profits as they are no-profit organizations. The motive of a Credit Union is to make banking services, including loans, available to their members at lower interest rates. Credit unions manage not to run after profits as they are usually exempt from federal taxes and also, at times, receive subsidies from affiliated organizations. Hence their primary focus is to remain committed to serving their member’s needs.

2. Membership of the organization:
Banks allow anybody to become a customer as long as the person has a clean history that does not violate financial or legal regulations prevailing in Canada. However, Credit Unions, which are financial co-operatives, usually allow members who belong to the same community that the co-operative has been set up for or require referrals from existing members.
3. Interest Rates:
Interest rate as a factor can be seen as the biggest differentiator between Credit Unions and Banks. When you deposit your money in a bank or a credit union, you will expect a high interest rate; when you borrow money from a bank or a credit union, you will want a low interest rate. Credit Unions score on the interest rate parameter. Credit unions offer attractive high-interest rates on deposits and low-interest rates on withdrawals.
4. Safety:
The banking system in Canada is regulated and safe. Funds in banks are insured through the Federal Deposit Insurance Corporation (FDIC). Funds in Credit Unions are covered by the National Credit Union Administration (NCUSIF) if they choose to be federally insured. By checking the websites of these organizations, you can know if the credit union or bank is federally insured or not. One common thing between both these institutions is that up to $250000 of funds deposited are insured against losses.
5. Customer Service:
Given that banks are usually very huge in size and have a sizeable number of customers, it is often difficult to provide a personalized customer care experience for each customer. Relationship Managers are assigned to high-profile customers. Unlike banks, credit unions are closely knit communities, and credit union representatives often offer faster, more personalized, and attentive customer service as they help you navigate through the best options available to you.
Should I join a Credit Union or a Bank in Canada?
Making the choice between joining a credit union or a bank in Canada would be a very personal choice and dependent on various factors. You may like to compare the various pros and cons of each financial institution. We have tried to summarize the advantages and disadvantages of both of these institutions as listed below:
Pros and Cons of the Banking System by and large:
Pros:
-Widely spread across the country, hence easily accessible.
– Larger number of ATM’s and Branches
– A wider array of financial services provided
– The convenience of digital banking and the ability to perform banking from any comfort zone

Cons:
-Lack of personalized customer care
– Banks are Profit-oriented institutions, hence, tend to offer higher interest rates on loans and lower interest rates on deposits.
– Lower Annual Percentage Yields
-Significant fees and transaction charges as they aim to generate revenue to earn a profit.
-Banks charge a fee whenever you withdraw from an ATM that belongs to a competitor bank.

Pros and Cons of Credit Unions:

Pros:
-Higher Annual Percentage Yields
-Credit Unions Offer Lower interest rates on loans and higher interest rates on deposits
-Credit Unions are recognized for Excellent customer service as Members are the biggest priority
-Lower fees and transaction charges when compared to traditional banks.
– Credit Unions are connected through an Exchange, and usually, they do not charge a fee if you withdraw from an ATM that belongs to or is run by a different Credit Union

Cons:
-It is not very widely spread. Hence, there are fewer brick-and-mortar locations.
-Though credit unions provide similar functions to banks, they offer a lesser variety of services. For example, both banks and credit unions will offer some services like Checking Accounts, Savings Accounts, Loans, Credit cards, Mobile Banking, ATM withdrawals, etc. Yet, the array of financial services offered by banks will be on a larger scale.
-The membership has some eligibility requirements and is more challenging than joining a bank as a customer.

Now that we have listed out the pros and cons of both the traditional banking system and the credit unions, what you must bear in mind before you make a decision is to consider what exactly your requirement is and which of these options meets it. While some customers may prefer the safety and credibility offered by financial institutions like banks, it is also important to note that Credit Unions are equally safe and a viable alternative to the traditional banks. Ultimately, everything boils down to whatever the need of the hour is.

Conclusion:

Credit Unions have been gaining traction and recognition as a safer alternative to the traditional banks, and they are here to stay. If you are looking for a lower interest rate on a loan, a higher Annual Percentage Yield, and a comparatively higher interest rate on the amount you deposit and enjoy personal care through your Credit Union representative, a Credit Union is your safest bet.

FAQ’s:

Q. How long does it take for a loan to be disbursed through a Credit Union?
Depending on the type of loan you have applied for, credit unions usually take anywhere between one and seven business days to consider your application and respond to you. If approved, the loan will be disbursed within a maximum of seven business days in your account.

Q. What happens to profits, if any, made by Credit Unions in Canada?
The profits, if any, made by Credit Unions are usually re-invested back into the business or distributed to the members.

Q. How can I join a Credit Union in Canada?
Just like one joins a bank, one must provide proper documentation or identification of the person, place of residence and work to join a Credit Union. Usually, Credit Unions require you to have some common thread with the rest of their members. For example, if you are looking to join a credit union for doctors, it is likely that you will be required to be a doctor yourself. Once you can join, you will be required to buy a share of the credit union, making you its member. Shares are relatively low-priced and will cost anywhere between $5 and $25, which is a much lesser amount when compared to the minimum balance you will need to maintain to operate a bank account.

Q. Can I have both a bank account and membership of a Credit Union in Canada?
Yes, it is possible to be a bank account holder and also a member of a Credit Union in Canada.

Are Credit Unions in Canada a good alternative to the traditional banks?

When you think of banking in Canada or possibly a financial transaction, the most likely thing to come to your mind would be one of the Big Six banking institutions of Canada, namely the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia or the Scotia Bank, Bank of Montreal, Canadian Imperial Bank of Commerce and the National Bank. What has mostly been overlooked and needs to be explored is the viable alternative of joining a credit union to avail of the same traditional banking services!
What is a Credit Union in Canada?
The first Credit Union was formed in Quebec in the 1900s and was known as The People’s Bank (Caisses Populaires). Credit Unions have come a long way since then and gained popularity over a period of time. Today, there are more than 1600 credit unions in Canada, with a few hundred to a few thousand members. Some of the biggest credit unions that you may have come across or known are Vancity, Coast Capital Savings, Meridian Credit Union, Servus Credit Union, First West Credit Union, Affinity Credit Union and so on.
Credit unions function as co-operatives as they bring together members who share a common interest like the same employer, community, faith, industry or anything that binds them together. Its customers are its members, and a credit union’s biggest draw factor is that, unlike a traditional bank, it does not strive for profit. It is a non-profit organization.
Some interesting facts about Credit Unions in Canada:
Did you know that Credit Unions were the first financial institutions to lend to women and that too in their own name, way back in the 1960’s itself? They were also the first to offer daily interest savings, open mortgages, cheque imaging services and many more.
So,what are the major differentiating factors between the traditional banks and Credit Unions in Canada?
While both banks and credit unions offer common financial services, there are certain subtle differences between both the institutions. Let us take a look at what makes them stand apart from each other:
1. Primary Motive of the financial institution:
The primary motive for a bank is to earn profit and make banking a profitable experience for its customers. All the services provided by banks are aimed at generating enough revenues to achieve this agenda. Credit unions have the motive of “Member First,” which means that once you become a member, your satisfaction is their first priority. Credit Unions are known for their excellence in the services they provide. Credit Unions do not have to strive for profits as they are no-profit organizations. The motive of a Credit Union is to make banking services, including loans, available to their members at lower interest rates. Credit unions manage not to run after profits as they are usually exempt from federal taxes and also, at times, receive subsidies from affiliated organizations. Hence their primary focus is to remain committed to serving their member’s needs.

2. Membership of the organization:
Banks allow anybody to become a customer as long as the person has a clean history that does not violate financial or legal regulations prevailing in Canada. However, Credit Unions, which are financial co-operatives, usually allow members who belong to the same community that the co-operative has been set up for or require referrals from existing members.
3. Interest Rates:
Interest rate as a factor can be seen as the biggest differentiator between Credit Unions and Banks. When you deposit your money in a bank or a credit union, you will expect a high interest rate; when you borrow money from a bank or a credit union, you will want a low interest rate. Credit Unions score on the interest rate parameter. Credit unions offer attractive high-interest rates on deposits and low-interest rates on withdrawals.
4. Safety:
The banking system in Canada is regulated and safe. Funds in banks are insured through the Federal Deposit Insurance Corporation (FDIC). Funds in Credit Unions are covered by the National Credit Union Administration (NCUSIF) if they choose to be federally insured. By checking the websites of these organizations, you can know if the credit union or bank is federally insured or not. One common thing between both these institutions is that up to $250000 of funds deposited are insured against losses.
5. Customer Service:
Given that banks are usually very huge in size and have a sizeable number of customers, it is often difficult to provide a personalized customer care experience for each customer. Relationship Managers are assigned to high-profile customers. Unlike banks, credit unions are closely knit communities, and credit union representatives often offer faster, more personalized, and attentive customer service as they help you navigate through the best options available to you.
Should I join a Credit Union or a Bank in Canada?
Making the choice between joining a credit union or a bank in Canada would be a very personal choice and dependent on various factors. You may like to compare the various pros and cons of each financial institution. We have tried to summarize the advantages and disadvantages of both of these institutions as listed below:
Pros and Cons of the Banking System by and large:
Pros:
-Widely spread across the country, hence easily accessible.
– Larger number of ATM’s and Branches
– A wider array of financial services provided
– The convenience of digital banking and the ability to perform banking from any comfort zone

Cons:
-Lack of personalized customer care
– Banks are Profit-oriented institutions, hence, tend to offer higher interest rates on loans and lower interest rates on deposits.
– Lower Annual Percentage Yields
-Significant fees and transaction charges as they aim to generate revenue to earn a profit.
-Banks charge a fee whenever you withdraw from an ATM that belongs to a competitor bank.

Pros and Cons of Credit Unions:

Pros:
-Higher Annual Percentage Yields
-Credit Unions Offer Lower interest rates on loans and higher interest rates on deposits
-Credit Unions are recognized for Excellent customer service as Members are the biggest priority
-Lower fees and transaction charges when compared to traditional banks.
– Credit Unions are connected through an Exchange, and usually, they do not charge a fee if you withdraw from an ATM that belongs to or is run by a different Credit Union

Cons:
-It is not very widely spread. Hence, there are fewer brick-and-mortar locations.
-Though credit unions provide similar functions to banks, they offer a lesser variety of services. For example, both banks and credit unions will offer some services like Checking Accounts, Savings Accounts, Loans, Credit cards, Mobile Banking, ATM withdrawals, etc. Yet, the array of financial services offered by banks will be on a larger scale.
-The membership has some eligibility requirements and is more challenging than joining a bank as a customer.

Now that we have listed out the pros and cons of both the traditional banking system and the credit unions, what you must bear in mind before you make a decision is to consider what exactly your requirement is and which of these options meets it. While some customers may prefer the safety and credibility offered by financial institutions like banks, it is also important to note that Credit Unions are equally safe and a viable alternative to the traditional banks. Ultimately, everything boils down to whatever the need of the hour is.

Conclusion:

Credit Unions have been gaining traction and recognition as a safer alternative to the traditional banks, and they are here to stay. If you are looking for a lower interest rate on a loan, a higher Annual Percentage Yield, and a comparatively higher interest rate on the amount you deposit and enjoy personal care through your Credit Union representative, a Credit Union is your safest bet.

FAQ’s:

Q. How long does it take for a loan to be disbursed through a Credit Union?
Depending on the type of loan you have applied for, credit unions usually take anywhere between one and seven business days to consider your application and respond to you. If approved, the loan will be disbursed within a maximum of seven business days in your account.

Q. What happens to profits, if any, made by Credit Unions in Canada?
The profits, if any, made by Credit Unions are usually re-invested back into the business or distributed to the members.

Q. How can I join a Credit Union in Canada?
Just like one joins a bank, one must provide proper documentation or identification of the person, place of residence and work to join a Credit Union. Usually, Credit Unions require you to have some common thread with the rest of their members. For example, if you are looking to join a credit union for doctors, it is likely that you will be required to be a doctor yourself. Once you can join, you will be required to buy a share of the credit union, making you its member. Shares are relatively low-priced and will cost anywhere between $5 and $25, which is a much lesser amount when compared to the minimum balance you will need to maintain to operate a bank account.

Q. Can I have both a bank account and membership of a Credit Union in Canada?
Yes, it is possible to be a bank account holder and also a member of a Credit Union in Canada.

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