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Banks, trust companies, and credit unions are all financial institutions that can provide you with services. It is very important that you are able to recognize the difference between them, so you can register with the organization that is right for you. Read on to find out more.
Banks, Trust Companies, and Credit Unions
A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services.
Most banks are managed by the national government. The major banks in Canada are TD Bank, CIBC (Canadian Imperial Bank of Commerce), RBC (Royal Bank of Canada), Scotiabank (Bank of Nova Scotia), and BMO (Bank of Montreal). These banks have branch offices that you can visit in cities and towns across the country. If you want to transfer money internationally, it’s usually easier to do so through one of these banks.
There are other banks that have few or no branch offices that you can go into. Instead, you do banking over the internet. These banks tend to have higher savings interest rates and lower fees than the major banks mentioned above. Some examples are EQ Bank and Alterna Bank.
Bank deposits are guaranteed by the CDIC (Canada Deposit Insurance Company) up to $100,000 per person per type of account (e.g. Savings, TFSA, RRSP).
A trust company is a legal entity that acts as an agent on behalf of a person or business. This is done for the purpose of administration, management and the eventual transfer of assets to a party.
Trust companies are like banks in that their deposits are also covered by the CDIC.
Below is a link to the CDIC list of member companies:
Check out our article on how credit unions differ from banks here.
The Credit Union Deposit Guarantee Corporation monitors and regulates the performance of credit unions in Alberta and the compliance of Alberta credit unions with the Credit Union Act. The primary role of the Corporation is to guarantee deposit protection to deposit holders with credit unions in Alberta.
Some credit unions in Manitoba enable you to do banking in Alberta using the internet, cheques, and ATMs (Automated Teller Machines). These credit unions have savings and GIC (Guaranteed Investment Certificate) rates that are comparatively high. Examples of these credit unions are Achieva Financial, Hubert Financial, and Outlook Financial. Credit Union deposits are typically guaranteed by credit union associations. For example, deposits in credit unions based in Manitoba are covered by Deposit Guarantee Corporation of Manitoba without limit.
Making a Decision
When deciding on whether to use a Bank, Trust Company, or Credit Union, some things to consider are:
- Need to visit a branch office
- Location of branch office
- Location of ATMs
- Account fees
- Interest Rates
- Need to send money outside of Canada
- Deposit Guarantees
When comparing the interest rates of banks and credit unions, consider the:
- amount in savings
- difference in rates
- time to calculate the difference in earned interest
Difference in Savings Interest Rates 2.1% minus 1.1% = 1% per year.
Difference in Earned Interest before tax $1000 x 1% = $10 per year before tax, which could be $7 after tax.
When deciding on which bank or credit union to do business with, the Savings Interest Rate may be more important for larger amounts of savings, or savings for longer periods of time.
Links about Financial Institutions
Banks vs. Credit Unions: https://www.ratehub.ca/blog/banks-vs-credit-unions-in-canada/
Interest Rates and Fees: https://www.ratehub.ca/savings-accounts/accounts/high-interest
Saving vs. Chequing Accounts: https://www.cannex.com/public/depa01e.html
CIES Guides are a volunteer-led project made possible through contributions from the community.
Thanks to Greg Sande for help with this guide. If you want to suggest a correction to this guide, or want to submit one of your own, please contact us.