Have you ever drive around your neighbourhood or city and noticed things called credit unions? If you answered yes, the odds are you’ve likely asked yourself what is a credit union? Credit unions are similar to banks and other financial institutions, but what makes them different is that they use a cooperative model where their focus is on its members and the community.
What that means is that most credit unions offer lower fees and higher interest rates compared to traditional banks which is why they’ve become so popular over the years. That said, with hundreds of credit unions out there, how do you know if you can trust them? Let’s dive and find out what is a credit union.
What is a credit union?
Credit unions aren’t something new, they’ve been around for more than 100 years. The first credit union in Canada was founded by Alphonse Desjardins in 1900. You might not be familiar with that name, but you’ve likely heard of the Desjardins Group as they offer financial services across Canada. In fact, Desjardins is the largest credit union in all of North America.
What makes credit unions interesting is that they’re owned by its members. Since they work under a not for profit business model, any money made is invested back into its operations, members and community. This is why their fees are usually lower and their interest rates higher than regular banks.
In Canada alone, there are around 300 credit unions. Each one differs in size from a few members to thousands. Some only have one or a few physical locations while others have hundreds. It’s estimated that one third of Canadians use a credit union so there’s no reason why you shouldn’t seriously consider one.
Types of accounts available with credit unions
Every credit union is different, but some of the most common accounts and products you can get with a credit union include:
- Chequing account
- Savings account
- Credit cards
- Guaranteed investment certificate (GIC)
As mentioned above, credit unions offer lower fees and higher interest rates on deposits which should be reason enough to switch. When you start to look at their individual products, you may realize that some of the things they offer are excellent.
For example, Meridian (a credit union based in Ontario) has the Meridian Visa Infinite Cash Back Card which is arguably the best cash back credit card in Canada. That’s quite the feat considering they’re competing against banks that have more cash to spend and more clients to rely on.
Then there are the Vanity enviro Visa cards that encourage the use of sustainable transportation and help support local businesses. These are obviously very niche credit cards, but it shows how credit unions can do more for their members and the community.
Credit union benefits
Low/no fees – This is the main reason people use credit unions. Their chequing accounts typically have fees in the $5-10 a month range which is significantly lower than banks. They also offer no fee banking solutions if you meet certain criteria. For example, your age or keeping a minimum balance. If you need a loan (including mortgages), credit union rates are usually lower than banks.
Higher interest rates – When it comes to banks, most of them give next to no interest. With credit unions, they offer competitive interest rates for most of their accounts and usually compare well with some of the best high interest savings accounts in Canada.
Member/community focused – Since credit unions focus on its members, the customer service experience is well regarded as the staff takes the time to get to know you and your needs. Many credit unions will also host community events where you can learn more about personal finance and products that may fit your lifestyle.
Huge ATM network access – Don’t you hate it when you have to pay a convenience fee when using an ATM that doesn’t belong to your bank? With credit unions, you don’t need to worry about that since most of them have partnered under the Canada-wide EXCHANGE Network. They have more ATMs available than any single bank in Canada, so you’ll always have access to your money.
Deposit protection – All financial institutions that accept deposits from the public must have registered deposit insurance. Credit unions are no different, but they’re typically not insured by one giant corporation such as the Canadian Deposit Insurance Corporation (CDIC). Instead, you’re usually covered by provincial or credit union deposit insurance which would cover you for $100,000-$250,000 per eligible account.
The downsides of credit unions
By now you’ve got a good understanding of what is a credit union, but you need to be aware of any potential downsides before you open an account.
Fewer credit card options – Although credit unions have many credit cards, their selection isn’t nearly as good as what you get from banks or American Express. Credit union travel credit cards likely won’t come with benefits such as lounge access or a companion voucher. You also won’t get any great sign up bonuses. That said, you can apply for a credit card at a bank you don’t do business with so it shouldn’t be a big deal.
Less accounts available – If you’re trying to keep all of your banking and investments to a single credit union, you may be out of luck. While credit unions offer a variety of accounts and investment options, they lack their own brokerage so you can’t invest in ETFs or individual stocks on your own. They also don’t have robo advisor options available.
Limited locations – Credit unions in Canada usually have limited locations (except Desjardins), which may be an inconvenience for some people. They also won’t have any locations in the U.S., so you won’t have access to cross border services.
Overall, these downsides of credit unions are pretty minor and shouldn’t be considered a deal breaker. More importantly, you don’t have to choose a credit union over a bank. There’s nothing wrong with having accounts with both. Just make sure you’re keeping your fees down.
How to join a credit union
Joining a credit union is easy, but there are sometimes a few rules in place. With provincial credit unions, you may be required to live, work or attend school in the province in which the credit union operates. Generally speaking, this isn’t a major issue for most people since credit unions serve the local community, but it may be an issue if you’re interested in one of their products such as a credit card, but you live across the country. That said, major credit unions such as Meridian allows anyone who lives or works in Canada to become a member.
When you’re ready to open an account with a credit union, you need to become a member first (remember, they’re a cooperative). This is an easy process since it usually means you need to buy one or a few member shares. Those shares cost about $1-$25 and are a one time fee, Once you own them, you’re a member and you can start banking with your chosen credit union.
Keep in mind that credit unions really do have a community focus. If coming up with the cash for the member fee is an issue due to your income, some credit unions may waive that requirement.
Switching to a credit union
If you’re tired of your bank and you’re ready to make a switch to a credit union, things couldn’t be easier. Once you have your account open, you can easily transfer your money by setting up a direct link to your other bank accounts. You can also set up your direct deposits and more all online.
Now, if you want to transfer your RRSP or TFSA it requires a little bit more work, but it’s still a relatively straightforward process. I recommend you read my guides on how to transfer your RRSP to another financial institution and how to transfer your TFSA, so you don’t make any mistakes that could affect your contribution room and taxes.
The best credit unions in Canada
- Alterna Savings & Credit Union – ON
- Meridian Credit Union – ON
- Vancity – BC
- Desjardins – QC
- Coast Capital Savings Credit Union – BC
- Servus Credit Union – AB
- First West Credit – BC
- Affinity Credit Union – SK
- Assiniboine Credit Union – MB
Choosing the best credit union in Canada is a personal choice, but quite often it comes down to the biggest ones available in your province. Take a look at what services, accounts and interest rates they offer before making your decision.
Now that you know what is a credit union, you can decide if what they offer appeals to you. There’s no denying that the low fees are attractive, but you may be looking for more banking solutions than what they offer. Remember, there’s no need to choose a credit union over a bank, you can use them both if you want