Credit unions are a big part of the Canadian banking system. Canada’s credit unions have more than 5-million members, and there are hundreds of local credit unions and caisses populaires serving communities from coast-to-coast.
While credit unions are hugely popular, especially in western Canada, you may never have thought much about them. If you’ve been working with the assumption that credit unions are somehow inferior to banks, it’s time to take another look. Credit unions offer many benefits, including some of the best rates on financial products. Let’s take a look at why you should consider banking with a credit union:
What is a credit union?
In Canada, a credit union or caisse populaire is a financial institution that offers many of the same products as banks. Credit unions offer chequing accounts, savings accounts, investments like guaranteed investment certificates (GICs), credit cards, mortgages, loans, lines of credit, and registered accounts like RRSPs and TFSAs. Many credit unions also offer business banking as well.
The main difference between credit unions and banks is that credit unions are not-for-profit organizations owned by their members. Unlike banks, whose primary responsibility is to shareholders, credit unions exist solely to serve their members.
Credit unions come in all shapes and sizes. In Quebec, Desjardins is a federation of 293 local caisses populaires, the largest in North America. The largest credit union outside of Quebec in terms of membership is Coast Capital Savings in BC, with 564,000 members. On the smaller side, you’ll find credit unions like Radius Credit Union in Saskatchewan with fewer than 5,000 members.
Why choose a credit union over a bank?
Premium chequing without the premium price
Premium chequing accounts come with all the bells and whistles: unlimited transactions, free in-person transactions, access to a large network of ATMs, free cheques and free bank drafts.
At major banks, these premium chequing accounts can cost as much as $30 per month. At some credit unions, you can find these features for far less. For example, Meridian Credit Union in Ontario offers all of the above for $12 per month.
Most credit unions offer the same level of chequing service as major banks, including access to tellers, free access to a broad network of ATMs, and online banking. And as with the big banks, you can open a bank account online.
Actually earn interest on savings accounts
Some of the best rates on high interest savings accounts in Canada are offered by credit unions – and some of the lowest are offered by the big banks.
Take, for example, the Scotiabank Money Master Savings Account, which pays 0.03% interest, and charges a transaction fee of $5. If you invested $10,000 in that account for a year, it wouldn’t earn enough interest to cover the fee to withdraw it.
Compare that with the Affinity Credit Union (Saskatchewan) Investor Savings Account, which pays 3.00% interest and has no transaction fee. Your same $10,000 deposit would earn $300 in interest in the first year.
Get the best GIC rates
Guaranteed investment certificates (GICs) are an investment that let you lock in your money for a fixed period of time for a set interest rate. Just like with savings accounts, credit unions far outperform the big banks when it comes to GICs (or term deposits, as they’re often called by credit unions).
In fact, the best GIC rate in Canada for a 1-year term is currently being offered by a credit union. Omnia Direct, a division of WFCU Credit Union in Windsor, Ontario, is currently offering a 1-year GIC with a rate of 3.10%.
Compare that to the big banks: The best 1-year GIC rate being offered by one of Canada’s big banks is currently CIBC at 2.50%. The lowest rate being offered comes from Scotiabank at just 1.20%.
Have a say in how your credit union is run
Banks are for-profit, publicly traded corporations. Their first responsibility is to deliver results to their investors, and that means doing whatever it takes to make as much profit as possible.
Credit unions, on the other hand, are not-for-profit organizations that are owned by their members. Their first responsibility is to provide service to their members. Credit unions’ boards of directors are appointed by their members. And when credit unions make a profit, they invest it in their members and community. For example, Servus Credit Union in Alberta has a profit-sharing program that rewards members with cash back and dividend payments based on the balance in their chequing, savings, and loan accounts.
Do good for your community
Many banks have corporate social responsibility (CSR) programs, and many do a lot of good in their communities and around the world. For example, Scotiabank’s 2017 CSR report says, “Scotiabank employees contributed more than 403,500 hours of volunteering and fundraising time, and the Bank contributed more than CAD$80 million globally in donations, sponsorships and other forms of assistance.”
Credit Unions do a lot of good in their communities as well, and because many credit unions have roots in a single community, the good work they do hits close to home. For example, Ontario’s Meridian Credit Union invests 4% of its pre-tax earnings in initiatives that benefit Ontario’s communities. British Columbia’s Coast Capital Savings established a program of community investments grants for youth, and appoints three youth councils of young adults aged 18-30 to review grant applications and decide how the money should be spent.
How credit unions fit in to your overall banking strategy
There’s no rule that says you have to have all of your accounts with the same bank. The best strategy is to seek out the best products, and avoid unwavering loyalty to a single financial institution.
When you need a new chequing account, find the best chequing account with the lowest monthly cost. If you’re looking for a savings account, choose the one with the highest rate. If you’re looking for a credit card, choose the one with the highest net reward based on your spending profile. When you’re shopping for a mortgage, use a mortgage broker to get lenders competing for your business and choose the lowest rate with the options you need. You can use different banks or credit unions for all of these products, and you’ll probably save a lot of money by shopping around every time.
While banks have all the brand recognition, credit unions are often very competitive. The next time you’re shopping for a financial product like a chequing account or savings account, keep credit unions in mind. You might find they have the best deal on exactly what you need.