How to choose the right credit union

When banks post staggering profits, it’s no wonder so many Canadians who pay transaction and service fees to handle their own money find themselves feeling a little miffed. The big banks’ profits could be one reason more than 5.3 million people in the country have opted to deal with credit unions instead.

But what’s the difference between the two and how do you know which type of financial institution is right for you?

What distinguishes credit unions from banks are two key factors: regulation and ownership.

Canada's banks are federally incorporated and regulated pursuant to the Bank Act, while credit unions are provincially regulated. Credit unions are owned and controlled by their members. As a shareholder, every credit union member has one vote, regardless of how much money is sitting in their account. Members also elect their credit union’s board of directors. Credit unions also typically play a role in supporting the community they’re in through policies approved by their members.

“The crucial distinction between banks and a credit union is in their respective DNA,” says Nancy Zimmerman, money coach and founder of Your Money by Design. “Credit unions are owned by the people who use them; banks are owned by shareholders. That means when you use a credit union you have a say in how it operates, and it also means if they’re profitable, you should receive a share of those profits each year.”

According to the 2012 Ipsos customer Survey Index survey, credit unions ranked higher than banks when it came to customer service, value for money of products and service received, and the sense that the institution values people’s business.

Compared to the broader Canadian population, members of credit unions tend to be older, female, more likely to be married, more likely to have higher household income levels, and have higher education levels, according to the Credit Union Central of Canada’s 2013 System Brief.

Fees and interest rates vary widely from one credit union to the next, just as they do for banks. Those are factors that need to be researched before you open an account.

There are other considerations when it comes to putting your money anywhere aside from underneath your mattress.

Technology

Whether it’s cheque imaging, mobile apps, or the capacity to handle international transactions, banks and credit unions have varying capabilities on the tech front too.

“Banks tend to lead a bit more on technology, though a lot of credit unions are too and are quick to follow suit,” says certified financial planner Anthony Larsen, money coach with Money Coaches Canada Inc.

If being able to do everything from your smartphone is something you need and you’d rather never step foot in a bank, it’s important to see exactly what features any given institution can offer.

Convenience

Typically credit unions have fewer ATMs and branches, which brings us back to the point above. Check out how much banking you can do online if that suits you, or where the nearest branch and bank machines to your home and workplace are located.

Deposit insurance

There’s often a sense of security with big banks and yet “people just trust ’em,” Larsen says. However, he notes that deposit insurance is something that a lot of people overlook.

Bank customers are insured to a maximum of $100,000 through the Canada Deposit Insurance Corporation. Credit unions have varying amounts of coverage, but $100,000 is the minimum. In some provinces, it’s $250,000. In B.C., insurance is unlimited.

Potential for credit

“Big banks have deeper pockets, which allows them to take greater risks,” Larsen says. He recalls a friend who’d been accepted into law school, and well before he’d even had his first day of classes, a bank offered him a line of credit for more than $100,000. Larsen says that kind of offer isn’t likely with most credit unions.

Being involved

Some credit unions have become very large and may not provide that personal touch that they’re often associated with.

“In either case, you will have more say than if you are using a bank,” Zimmerman says.

“You need to decide your personal philosophy. Do you want to be active in participating in how a financial institution conducts itself? That will happen more easily with a credit union, although of course you can also become a shareholder in a bank. But typically belonging to a credit union will provide you more opportunities to do so.”

Importance of community

“A lot of people get attracted to credit unions because of the philosophy of keeping money in my community,” Larsen says. “It’s like people who go to the local butcher compared to Safeway. What are your values?

“But people may be frustrated at a smaller institution if they’re coming from big one, and they haven’t thought about the type of banking they prefer to do from a convenience standpoint,” he adds, noting that banks may have broader infrastructure to meet the needs of high net-work clients with things like estate planning.

“Banks have their place too,” Larsen says. “It’s about your personality.”