May 12, 2023

Banks vs Credit Unions

How do They Compare?

If you are reading this blog, chances are you are looking to keep more of your hard-earned money. Today there are more choices for financial products available to consumers than there have ever been. Credit unions and banks now offer increasingly similar financial products, and whether you are looking to open a new chequing account, savings account, or line of credit, it can be difficult to determine which institution provides the best option for your needs.

Examining Credit Unions

At first glance, credit unions appear to be very similar to banks in that they offer many of the same products that banks do, such as chequing and savings accounts, credit cards, and loans. However, when we stop to take a closer look, we start to see some key differences that result in different outcomes for consumers.

A credit union can be defined as “A type of financial cooperative that provides traditional banking services.” Unlike banks, credit unions are non-profit entities that are controlled and owned by their “members”, or customers, who use their services. Credit unions are operated by members who are elected to be a part of the Board of Directors and are tasked with managing the credit union on a volunteer basis.

To join a credit union, an individual must meet the criteria to be a part of a credit union’s field of membership. This means they need to meet certain requirements to be eligible. This could meaning living in a certain area, working for an employer with an established relationship with a credit union, belonging to certain organizations, or having a family member who is part of a credit union.

What Is the Goal of a Credit Union?

The main objective of a credit union is to promote the best interests of its members. As a non-profit organization, they are exempt from paying taxes at the rate that banks and other for-profit organizations pay. This means they don’t have to pay corporate income tax on profits and just need to make enough money to meet day-to-day expenses.

In 2019, the U.S. had the highest number of credit unions by far, with 1,584,742 credit unions available nationwide and assets reaching approximately 1.58 trillion U.S. dollars. Canada came in second with 340,693 credit unions nationwide and about 340.7 billion U.S. dollars in assets.

While the lower interest and loan rates may make credit unions an appealing choice, there are several reasons to consider banks as well.

Examining Banks

A bank is a financial institution that has a license to hold and lend money to both individuals and organizations. Like credit unions, they offer various financial products to their customers, like everyday chequing accounts, savings accounts, and lines of credit. However, unlike credit unions that only serve their members, banks are open to anyone who is interested in their products and services, provided they don’t have a poor banking history.

Banks also have significantly more branches and ATMs available to service customers than credit unions do. According to a 2016 study by the Canadian Journal of Nonprofit and Social Economy Research, there were 2,906 credit union branches across Canada, while banks had 5,388 branches nationwide. However, the study also showed that banks had a larger proportion of branches in urban areas, while credit unions had a larger representation in rural areas, with almost one-third of credit union branches present in rural areas.

What Is the Goal of a Bank?

As banks are owned by investors, their primary goal is to make profits for their shareholders. While banks work to meet the needs of their customers, there is a greater focus on earning a profit. They are also subject to corporate income taxes due to their for-profit status, and it is common for banks to frequently charge greater fees than credit unions. Circumstances differ from bank to bank, but generally, banks' lending interest rates are higher than those offered by credit unions. In 2020, credit unions in the U.S. offered a 15-year fixed-rate mortgage at a rate of 2.79 percent on average, while banks offered an average rate of 2.92 percent.

Comparing Banks and Credit Unions

When it comes to security, credit unions and banks are generally comparable in Canada. Canadian deposits to both banks and credit unions are insured by the Canadian Deposit Insurance Corporation (CDIC). The CDIC is an independent crown corporation formed by the federal government of Canada. It was established to protect bank deposits of up to $100,000 per insured category held in member Canadian institutions. Member institutions include federal credit unions, major national banks, Canadian branches of international banks, as well as non-traditional banks.

On the whole, banks are larger than credit unions in terms of market size. According to a report by IBIS World, the market size (measured by revenue) of the Commercial Banking industry in Canada, is $230.3bn, compared to the market size for credit unions at $20.1bn in 2022.

Banks and credit unions clearly differ in significant ways. But what are the benefits of working with each institution? Let’s take a look.

The Case for Credit Unions

Lower Lending Interest Rates & Higher Savings Rates

Credit unions operate to promote the financial well-being of their members. As a result, they can offer their members better interest rates on deposits than banks, which allows members to make more from their savings.

According to the National Credit Union Administration (NCUA), the national average rate for five-year certificates of deposit (CDs) from credit unions in the U.S. was 0.94%, compared to an average rate of 0.78% at banks in 2020. Similarly, most offer some of the lowest rates on credit cards and other lines of credit on average.

Despite this, it is always important to shop around to find the best financial products for your situation.

Stronger Customer Service

As credit unions are member-owned and managed, their priority is to put their members first. This allows them to offer more personalized service to each of their members and is why credit unions have a strong reputation for providing more personalized customer service. Members also have equal voting rights that allow them to influence votes on customer service concerns, something that is not possible with banks.

Community Involvement

As members of a credit union often have shared interests as a requirement to join, many appreciate the opportunity to participate in an institution designed to help other members. Credit unions frequently give back to the communities they serve since they tend to be locally oriented and are focused on their members. They may award scholarships or grants to college students, or they may participate in fundraising events. Some credit unions may also provide financial education and literacy training for their members as well.

The Case for Banks

Greater Accessibility

Unlike credit unions that only serve their members, banks serve the public. This makes banks more accessible for people who may not meet the eligibility criteria to join credit unions and can mean that banks are a more appealing option for consumers who do not have a personal connection to a community that is served by a credit union.

Increased Convenience

Banks generally have more branches and ATMs available nationwide than credit unions do. This makes it easier and more convenient for consumers to be able to access their money and conduct other services with banks. Bank ATMs and branches tend to be more concentrated in urban areas, while credit unions have a higher proportion of branches in rural areas, especially in Canada. It is important to note that while credit unions have fewer branches and ATMs on average, they frequently collaborate with other cooperatives to expand branch locations and provide increased access to fee-free ATMs.

Superior Technology

Banks usually have better financial technology than credit unions. As they tend to be larger organizations, banks have larger budgets than credit unions with which to invest in technology, such as mobile banking apps and improved website experiences. Customer experience can be a way to draw customers from other banks and retain existing clients who value the ability to conduct their banking across a range of platforms and devices.

While many credit unions have come a long way in improving their technological services through offerings such as mobile cheque deposits and mobile banking apps, they still lag behind the big banks in many cases, making them less attractive to some customers.

Which Option Is Better for You?

While banks and credit unions offer similar products and services, there are some key differences between the two financial institutions. There is no one-size-fits-all approach to choosing between the two, which is why it is important to evaluate the features that are most important to you and your situation.

For consumers who may not qualify to be a part of a credit union, need nationwide access and convenience, or value easy access to online and mobile banking technology, a bank may be the better bet. But for consumers who value lower interest rates, higher savings rates, personalized customer service, and a commitment to community involvement, then a credit union may be the right choice.

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Is Canada Really in a Recession?

23 Dec, 2023

Context A CBC News article discussed the possibility of the Canadian economy heading into a recession, or whether the country has already passed that threshold. The article discussed this possibility based on slowed growth, high inflation, and the Bank of Canada’s continued interest rate hikes. Analysis A recession is a significant reduction in economic activity that occurs over a length of time, usually months or years. One of the most accepted definitions of a recession comes from the economist Julius Shiskin in 1974, who identified the threshold to an economic recession as two consecutive quarters of declining GDP, although economists often argue about the comprehensiveness of this measure. The causes of a recession can be quite complicated and have many contributing factors. Some common examples include a sudden economic shock such as the recent COVID-19 pandemic, excessive debt, asset bubbles, inflation, deflation, or large technological changes. One major factor influencing the probability of an economic recession includes rising interest rates from the Bank of Canada, which has implemented the highest hike in the shortest amount of time in all of the bank’s history, raising the rate over eight times since 2022. The Bank of Canada increased interest rates in order to curb inflation since rising interest rates discourage taking on debt and spending. This further encourages companies to lower prices or slow inflation to increase demand. Currently, the Bank of Canada is keeping at the 5.0 percent rate but has said that further hikes are not off the table as inflation may continue to exceed acceptable rates. Increases in interest rates can certainly contribute to or precede a recession. In fact, the Bank of Canada has raised interest rates three times to slow inflation since the 1960s and all three times this action led to an economic recession. Current fears of a looming economic depression are also not unique to Canada, as following the COVID-19 pandemic, the global inflation rate increased to 8.73 percent in 2021. This was due to supply chain issues, as well as the effect of the Russia-Ukraine War creating rising food and energy prices, as well as general fiscal instability. A majority of the World Economic Forum’s lead economists agreed earlier this year that we could see the beginning of a global recession starting in 2023, which would certainly affect the Canadian economy. The article also discusses the Canadian economy’s slowed economic growth, as the GDP has stagnated in the second quarter of this year. However, it suggests other factors may explain the decrease, including striking port workers in British Columbia, and the resulting negative effect on economic activity. An RBC report mentions how on a per-person GDP basis, there has already been a decline for four straight quarters despite a surge in population growth, and concludes overall predictions for GDP growth do not look promising despite local factors including Canadian wildfires and strikes. They also point to a 0.5 percent increase in the unemployment rate over the past few months, which has historically tended to indicate a looming recession.

Ottawa Mayor and Lansdowne Park

21 Dec, 2023

Context The City of Ottawa Mayor, Mark Sutcliff released a statement about a revised plan for the redevelopment of Lansdowne, an urban public park containing historic landmarks and commercial venues. The project includes the demolition of a sports arena complex, stadium stands, and the building of a new event center, residential units, and retail space. Despite suggesting the new plan has addressed the concerns of residents, many issues remain. Analysis The City of Ottawa and the Ottawa Sports and Entertainment Group (OSEG) have been in partnership to develop Lansdowne since 2012 and finished an original redevelopment of the park back in 2014. A few years later in 2019, the financial sustainability of the park came to the city council’s attention, and in 2020 the partnership was extended another 10 years with direction to develop a new plan to revitalize Lansdowne. Consultation with community members started in 2020, with the original concept released last year in 2022, and a revised version released this month. Community feedback was acquired through various platforms including public information sessions, an open email for feedback, and public surveys. A summary report of that feedback was published on October 6th, which highlighted the six most common themes of community residents’ concerns. The first concern was related to the size and number of the multiple high-rise apartments which were designed to exceed 30 floors. In the new plan , they have removed one of the three planned buildings, with fewer total units in each, and only one tower with the potential to be built at 40 stories. Residents were also concerned about the loss of greenspace due to the new event center construction. Many people suggested they wanted that greenspace allocated elsewhere, or alternatively, an accessible greenspace roof on the event center. Although in the original plan the city had conceptualized a greenspace rooftop on the event center, this was scrapped in the new plan as it was deemed too expensive to maintain. Respondents wanted a restriction of vehicles to the premises to promote pedestrian safety, a concern that has existed since Lansdowne was first renovated back in 2014. They also wanted more public transportation infrastructure to and from the park, whether that is the local city buses, trains, or cycling infrastructure to reduce congestion on connecting roads. Relatedly, residents also desired more accessible public use space from washrooms to water fountains to usable and free space for people to occupy. The new plan has reduced the number of parking spaces for the residential buildings to meet the Bylaw limit of 0.4 spaces per unit, down from 739 to 336 spaces, while they added 36 new spaces for the event center. In terms of accessible public space, the new plan includes 27,000 square feet of space originally earmarked for the third residential building, now available for an unspecified “public realm.” Residents also wanted more local and less corporate or big-box businesses, to reflect the unique local community better. The new plan does suggest the amount of retail space has been reduced from 108,000 square feet to 49,000 square feet but does not directly address the desire to attract smaller, local businesses. Finally, there was also a concern about financial transparency of how the project is being funded and the resulting impact on the City. The Federation of Citizens Association (FCA) which represents over 70 community groups voted unanimously to oppose the new plan, which comes with a very costly price tag of $419 million, increased from $332 million of the first plan. They cite that the debt comes at a time when the transit system is facing major issues, and the city is struggling with a housing affordability crisis.

Danielle Smith - Conflict of Interest

20 Dec, 2023

Context Newly elected Premier of Alberta Danielle Smith has defended her cabinet which is coming under fire over conflict-of-interest concerns. Environment and Protected Areas Minister Rebecca Schulz’s husband, Cole Schulz , may be lobbying the government in the areas that the Minister works in. Cole Schulz's firm is working on removing the protection of a threatened caribou range to make room for the oil and gas industry – which has raised concerns over who has Minister Schulz’s ear. Analysis The company that Cole Schulz is a partner with, Garrison Strategies, was hired by the Explorers and Producers Association of Canada and is working to influence the government on the issuing of reclamation certificates for oil and gas sites. The lobbyists are working to gain more access to protected caribou habitats to expand the oil and gas industry. They are hoping to “ address the moratorium on tenure in caribou regions ” which would effectively give them better access to land and investments. The Little Smoky and A La Peche herds in northwest Alberta were protected by a moratorium in 2013 which stopped the granting of new energy leases in this area. At the time, 95 percent of the herd’s range was heavily damaged. Phillip Meintzer of the Alberta Wilderness Association found that though records show that Garrison didn’t contact Environment and Protected Areas directly, the firm’s causes are “ too close for comfort ”. Meintzer also notes that as Garrison works on opening the protected caribou land for Alberta Energy, Environment and Protected Areas should be working on a protection plan for the federally and provincially designated threatened animal . Minister Schulz is working closely with the ethics commissioner, however, Danielle Smith confirmed that “ the ethics commissioner has looked at it, given guidance and there’s no violation [of the Conflicts of Interest Act]”. Cole Schulz also indicated that his firm wasn’t aware that Minister Schulz breached the Act at any time. Meintzer suggests that this situation “ calls for a further look ” from a third party. Sources https://globalnews.ca/news/9988998/alberta-premier-danielle-smith-rebecca-schulz/