What is a credit union?
A credit union is a not-for-profit financial institution similar to a bank but with a different structure. While a bank is a corporation, a credit union is a community co-operative owned by its members. As such, the goal of a credit union is to provide the best services and products to its members. In contrast, a bank’s main objective is to provide financial returns to its shareholders.
Credit unions can vary in size and are quite popular in Canada, especially in the western provinces and Quebec.
What services and products do credit unions offer?
Credit unions offer many of the same services and products as traditional banks, including the following:
- Chequing accounts
- Savings accounts
- Tax-Free Savings Accounts (TFSAs)
- Retirement accounts
- Credit cards
However, credit unions usually don’t have the same number of product options as big banks do.
How does a credit union work?
Individuals pay a small fee to join a credit union in their community, giving them an equal voice within the membership no matter their income level or credit score.
The members democratically elect a board of directors, who perform their duties on a volunteer basis. A credit union aims to help the community it serves and keep the money within members’ pockets. Any profits go right back into the credit union and are returned to members through profit sharing or investment in the community.
How is a credit union different from a bank?
There are several ways in which credit unions differ from banks.
First, you need to apply to become a member of a credit union, which includes buying a share in the co-operative. Additionally, as mentioned above, credit unions are not-for-profit. In contrast, banks are private corporations and you don’t need to apply to become a member. Almost anyone can walk into a bank and open an account.
Where you will really notice a difference, however, is in the actual banking process, fees, interest rates and quality of service. Credit unions aim to provide their members with lower fees, higher interest earned on deposits, and excellent customer service when compared to traditional banks. But, as mentioned above, credit unions typically don’t have as many product options as banks.
Advantages and disadvantages to credit unions
More than 5.8 million Canadians use credit unions. They are an excellent option for those who place a lot of value on community and like the idea of having a voice within the co-operative.
Some of the biggest advantages of being a credit union member are the lower fees, more favourable interest rates, and customer service. Plus, credit union members can access thousands of ATMs across the country (through the Exchange and Acculink networks) without paying extra fees.
There are some disadvantages as well. You need to pay a membership fee to join a credit union, but the cost is typically low ($5-$25). Additionally, credit unions offer fewer branches and services compared to traditional banks. Credit unions have also fallen behind big banks in terms of technology, so don’t expect fancy apps or customer service via social media networks.
How to find and join a credit union
There is no standard process for joining a credit union as most are provincially regulated. Depending on the credit union, you may be asked for some sort of proof that you are a community member (e.g. you live, work, or go to school there, etc.). If you meet the requirements, you can buy your shares and become a member.
To find a credit union near you, visit the Canadian Credit Union Association website.