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.