Should You Join A Credit Union?

Canada’s banking system is dominated by the so-called “Big Five,” the five largest banks in the country.

Royal Bank, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank of Commerce own approximately 85% of Canada’s domestic consumer banking market. This leaves other banks, credit unions, and other specialty finance companies to basically fight for the scraps left behind.

Some people think this is a very bad thing. Folks everywhere complain about the service received at these large banks. Others complain about the high fees, aggressive collection practices, or a myriad of other issues.

The solution for many of these people is simple. Instead of keeping their money safe at a big bad bank, they join a credit union, a community-owned co-operative that operates much like a bank, but without all the negative stuff. Think of credit unions as banks with hearts.

But are credit unions really all they’re cracked up to be? Let’s take a closer look.

How do they work?

Credit unions and banks are, for the most part, exactly the same–at least from a customer’s point of view. They both offer deposits and mortgages and wealth management and so on.

The big difference is when you go to open an account. Credit Unions will only give an account to someone who’s a part-owner of the organization. This means you have to buy a share in order to become a member.

Typically, this isn’t much money. Most credit unions offer a share for five dollars or less. My credit union offers shares for only a dollar these days, although they used to be much more. When I first opened my account there in the 1990s, it was $25 to join.

While even $25 isn’t a insurmountable amount to spend, it’s still $25 more than you’d spend to join a regular bank.

Credit unions have been, traditionally, only provincial institutions. Their deposits are guaranteed by provincial governments, not the federal one. This has limited them to only expanding inside their own province, at least historically. Recent changes have given credit unions the right to incorporate federally, although no institution has expanded outside of its province.

What are the advantages?

This is where talking about credit unions gets a little tricky.

There are hundreds of credit unions across Canada, ranging in size from just a few branches to billion dollar plus financial behemoths. Vancity, the nation’s largest credit union in British Columbia, has approximately $20 billion in assets, 59 branches, and more than a half a million members.

Each separate credit union offers their own unique blend of products. Some might offer great mortgage or GIC rates. Some might offer higher fees in exchange for great service. It all depends on the company, its business plan, and so on.

This is where one of the traditional arguments for using a credit union falls flat. People have said for years fees are lower at credit unions than traditional banks. This could be true. But I’ve found it often isn’t.

My credit union offers accounts that are less competitive than many of its major competitors–including some of Canada’s largest banks. Its mortgage rates are good, but not great. And I’ve found its GIC rates to be barely this side of terrible.

Generally, though, service at credit unions is better than major banks. Your experience may vary, of course, but most folks do report being happy with the service at their credit union.

The point is every credit union is different. So it’s somewhat pointless to tell someone to switch to a credit union to save fees or get a higher interest rate.Sometimes that advice will be true. Other times, it won’t be.

There’s one more advantage. Remember that share you have to buy to be a member of a credit union? The company will often pay dividends to shareholders. It won’t be much, but it’s always nice to get a little free money.

 

What are the disadvantages?

One big issue in banking with a credit union is moving. If you move from Alberta to Ontario and you’re a CIBC customer, staying a CIBC customer is a breeze. It’s harder to switch from credit union to different credit union, although hardly impossible.

Credit unions are also limited when it comes to other things like ATM selection, technology, and access to certain services.

Should you join a credit union?

Ultimately, it comes down comparing each individual credit union to other banks and your needs. Sometimes, it’ll make sense to switch. Other times, it won’t.

CETA and Brexit: How Will Britain’s New Referendum Affect Canadians?

People are reacting in many different ways to Britain’s exit from the European Union. Some are supportive while others condemn the actions of the country that has long had mixed opinions among its populace as to whether they should stay a part of the conglomerate of European nations. One thing that many Canadians are wondering about is how Britain’s new referendum will affect their finances. Again, there are many possibilities, but it is important that people understand the facts of the situation before making major predictions.

How Brexit Could Affect CETA

The Comprehensive Economic and Trade Agreement is an agreement between Canada and the EU that allows Canadian companies access to the EU’s market. With the uncertainty created by Britain’s move to leave the EU, some think that Canada should avoid making any big moves until the effects of the Brexit can be better understood. The fact is that while it is likely that Britain’s referendum will go through, it is also possible that the country’s Parliament will reject the movement outright.

It is possible that the CETA will suddenly become an important strategic aspect of Canadian international relations in a way that it hasn’t before. If Britain attempts to remain in free trade with the EU, it is possible that it may face major concessions if it is to be allowed such access at all. The CETA is a way for Canadians to maintain ties with the EU in new ways.

Previously, relations with Britain were a major part of Canadian businesses’ entry into the rest of the EU. The new changes may open the doors to more diverse methods of trading that had previously not been considered when most Canadian CEOs enacted their transactions with the EU through their London offices. Now, Canadian businesses must find new ways to leverage the connections formed through the CETA, perhaps tapping into their links to France, Belgium, and Germany, along with other continental partners.

Reallocation of Resources

Some, such as Charles St-Arnaud, who works as an economist in London at Nomura Global Research, insist that the Brexit will be negative for Britain’s economy. However, how significantly this will impact Canada remains in question. For one, it will depend on how Britain chooses to act. In order to maintain its economy, Britain will have to allocate its resources towards other free-trade agreements, such as with non-EU countries and possibly the United States. St-Arnaud hypothesizes that Canada would be at the bottom of the UK’s list of potential new trade partners.

Whatever happens will surely have consequences for Canada, however, Canadian businesses will also have a say in the matter. The UK has been Canada’s biggest business partner in the European region, and if businesses in Canada wish to continue such exchanges in the wake of the Brexit, Canada’s government would first have to pursue a new trade agreement with Britain. As of now, Canadian officials will not discuss the possible impacts of the Brexit on trade relations. This is probably for the best until things stabilize.

What Financial Advisors Have to Say About the Brexit and Canada

While it is possible that the Brexit could bode significant consequences for Canadian business, it is impossible to be entirely certain as of yet. One thing to keep in mind is that the Canadian dollar has only fallen 1.5 percent in global stocks since the Brexit. Canada remains in active trade with the other nations in the EU, and it may turn out that the only country to really experience major losses as a result of the Brexit will be Britain itself.

In looking towards the future, financial advisors have their input on the situation. The words of Fisher Investments on Brexit remain skeptical and analytical. They have noted that in order to arrange an exit from the EU, member nations must negotiate exit terms, and they have two years to do so. It seems likely that the EU will wait until after elections in the UK. David Cameron himself stated that he would leave his office by October of 2016, leaving the question open as to whether the UK’s resolution will end up sticking in the long term. Vanguard’s Peter Westaway notes the Brexit impact on UK investors is significant, but comparatively minor for the Canada and rest of the world.

The Changes to Come

While things remain uncertain about the full scale of the impacts of Brexit on Canada and its businesses, it is best for people who hold large assets to be wary of making major moves regarding the EU and especially the UK. While CETA maintains its integrity, the shift in the EU’s economy may yet have unforeseeable consequences.