Banks VS Credit Unions
Finding somewhere to trust with your life savings and all personal information can be a big decision. Two of the most common types of facilities that are around to help are either Banks or Credit Unions. Banks VS Credit Unions… What is the main difference between the two you ask? To keep things simple, one of the biggest differences is that a Bank is FOR profit and a Credit Union is NON profit.
Banking is a financial system in which regulated institutions partake in accepting deposits, lending money, and transferring funds.
Canadian banking system groups financial institutions into five main categories:
- Chartered banks
- Trust and Loan companies
- The Cooperative Credit Movement
- Insurance Companies and
- Securities Dealers
The Big Five banks listed below dominate Canada’s financial ecosystem:
- Royal Bank of Canada (RBC)
- Toronto-Dominion Bank (TD)
- Bank of Nova Scotia (Scotiabank)
- Bank of Montreal (BMO)
- Canadian Imperial Bank of Commerce (CIBC)
In Canada, credit unions are regulated at a provincial level and either Provincial corporations or non-government insurers insure deposits made into the organization and can offer mortgages to borrowers who would not pass the current mortgage stress test. Yes, they can approve a mortgage application without a stress test.
There are many similarities between a bank and a credit union as a financial institution, which operates under similar regulations pertaining to loans, mortgages, and security. In terms of financial products, credit unions vs banks debate is irrelevant because you will likely find your banking needs at both credit unions and banks.
- Checking accounts
- Savings Accounts
- Loans
- Credit cards
- Mobile Banking
- ATM facilities
However, there are also a variety of differences such as:
- Ownership
- The main difference of ownership between a bank and credit union is that Banks are for-profit and Credit unions are non-profit.
- Membership
- Banks can do business with any customer if they do not have a history that challenges financial or legal regulations, whereas Credit Unions can only do business with their internal members.
- Customer Service
- Banks offer 24/7 call centers with support available in multiple different languages. Credit Unions may not offer 24/7 support but usually can offer their members fasters personalized services at a quick pace.
- Interest Rates
- Generally speaking, Banks do have lower interest rates than Credit Unions.
- Fees
- Credit Unions often have lower and fewer fees than traditional Banks, however, Banks have more financial products in their portfolio.
- Tax
- Banks are liable to taxation whereas Credit Unions are tax-free.
- Regulatory Bodies
- Banks need to follow the guidelines and restrictions put into place by the following companies: Minister of finance of Canada (Finance Minister), Office of the superintendent of Financial Institutions (OSFI), Bank of Canada, Canada Deposit Insurance Corporation (CDIC), and Financial Institutions Supervisory Committee (FISC). Whereas Credit Unions are chartered and regulated provincially, that means they are subject to provincial deposit insurance regimes.
- Insurance
- Banks provide insurance by the Federal Deposit Insurance Corporation (FDIC) and Credit Unions provide insurance by the National Credit Union Administration (NCUA).
There are several advantages of a credit union mortgage as opposed to a large, federally regulated bank…
- Easier approval processes
This is primarily because credit unions hold the loans that they originate whereas banks often take mortgages off their own books by selling them to outside investors. As such, these investors are often the ones that influence the interest rate charged as well as underwriting standards. This means that banks will typically have far less power to be flexible with their lending in terms of the rates offered and who they can lend to.
- Reduced rates
This member-focused mandate further helps mortgage borrowers to secure lower rates on their mortgages. Credit unions are largely designed to break even on their costs and are not taxed at a federal level.
- Customer service
At a credit union, loan officers generally have a smaller portfolio of clients than banks. This enables a more personalized experience when originating a new mortgage.
- No Mortgage Stress Test
That’s right! Credit Unions can approve a mortgage application without the need for a mortgage stress test. This does come with a slightly higher interest rate, but it still tends to be a lower interest rate than you would get from a trust company or a private mortgage lender.
