Banking with a credit union can save on fees but there are limitations

A senior inserts their card into an ATM in this undated stock image. (Shutterstock)

On the surface, banking with a credit union may seem a lot like a traditional bank.

But it’s not.

Credit unions are similar to commercial banks in that they offer chequing and savings accounts, mortgages, business loans, online banking and registered savings plans -- all for lower or no fees than traditional lenders. But credit unions are co-operatives and therefore tend to be much smaller than the major banks.

Customers have to buy a one-time membership share to get started, said Wendy Brookhouse, certified financial planner and CEO of Black Star Wealth.

“Walk in, say: ‘I’d like to become a member and pay for your membership share,”’ she said. “You’re now banking there.”

Credit unions are usually community-oriented, Brookhouse said. That makes them a good fit for socially conscious people who want their money to stay within their community.

“Their whole goal is to use the money to either make better services, invest back in the community, or invest in getting better rates or better whatever for the clients,” Brookhouse said.

Credit unions have also become an attractive alternative to traditional banks for many cost-conscious Canadians, said Natasha Macmillan, director of everyday banking at Ratehub.ca.

“People are looking to diversify,” she said.

Macmillan said many want to minimize their banking fees, higher interest rates on savings and the possibility of a lower rate on their loans.

“As people are feeling the cost of living increases and things like that, they’re really looking to get the best bang for their dollar.”

She said she sees more Canadians trying to move away from big banks that may require a minimum amount sitting stagnant in a chequing account to forego bank fees, or that have monthly charges of as much as $30. Most credit unions have significantly lower fees.

“People are becoming more aware about the options out there, and so we are anecdotally hearing that people are making the switch to some of these credit unions,” she added.

Credit unions, the vast majority of which are provincially governed and geographically-focused, are a popular go-to in Quebec, British Columbia and Alberta, where there are some large regional players. Desjardins is by far the largest, and some like Vancity, Servus and Meridian have memberships in the hundreds of thousands. Others, such as those with beginnings in labour groups or religious and cultural communities, are smaller.

The Bank Act, which governs the commercial banks in Canada, also applies to federally regulated credit unions.

Like a bank, credit unions have consumer deposit insurance. The provinces regulate coverage for provincially governed credit unions, while federally regulated credit unions are among members of the Canada Deposit Insurance Corp. Provincial deposit insurance coverage for its members is equal to or higher than that of the big banks, according to the Canadian Credit Union Association.

Despite the potential savings and other benefits though, experts say some Canadians might be hesitant to bank with a credit union because of a lack of convenience.

Macmillan said credit unions often have limited branch networks, which can be inconvenient. Members can also get dinged for ATM withdrawals if they’re not using an ATM within the credit union’s network.

There are also limited investment options at some smaller credit unions’ wealth management services compared with a large full-service bank, she added.

Macmillan said it may not be a bad idea to have multiple bank accounts, including one with a credit union.

“It’s really about not focusing on putting all of your money in one bank, but really looking at what the purpose is and why you might want to switch,” she said.

Some credit unions may require members to meet eligibility criteria, such as being a part of a religious or ethnic community, a worker in a particular industry or a student, to set up an account, said certified financial planner Cindy Marques.

“Not everyone will meet the eligibility criteria to be a credit union member,” she said in an email. (Many credit unions have no eligibility criteria.)

Marques said digital banks have also made the space more competitive, offering better deals to customers.

“I don’t necessarily feel that a credit union is the best solution for many Canadians seeking an alternative,” Marques said.

Brookhouse said choosing to bank with a credit union comes down to personal preference.

For example, Brookhouse said she might recommend her client consider a credit union if it lends up to 100 per cent for a mortgage.

Credit unions also work well for those with simpler day-to-day banking needs, such as making deposits, paying bills and saving. It may not work well if a client has to conduct foreign transactions, she said.

Before switching lenders, Brookhouse said it’s important to understand what networks the credit union is a part of and how that would affect the movement of your money.

“If I’m doing an Interac transfer to somebody, what is the cost with the credit union versus the bank? How many days does it take? Or is it instantaneous?” she said.

“Sometimes it’s just understanding it, and then you adapt, versus, is this a deal-breaker?” Brookhouse said.

This report by The Canadian Press was first published Aug. 26, 2025.

Ritika Dubey, The Canadian Press