How Banks Differ From Credit Unions - How Can They Offer Higher Rates | Implicity Financial | Discussion forum

The two main differences between credit unions and banks are ownership and who receives the profits. Credit unions are owned by the members (customers) of the credit union, while banks are owned by their investors (share holders) - not their customers. Banks are focused on making huge profits from their customers to give to their investing share holders. Credit unions investors are it's members (customers) so they don't have to make huge profits. Consequently, if they run efficiently, as many are in Manitoba, they are able to charge lower interest rates on loans and higher rates on deposits. They can also charge lower fees as they attempt to merely cover their costs. The rates they pay have nothing to do with a risk premium. They pay great rates because they can.

For all Banks, they will pay what ever low rate they can get away with. A way to keep their cost of funds down to create higher net income for their investors. For any financial institution, they will raise their rates as they raise their loan and mortgage rates as they need to make a margin between deposits and loans. On occasion deposit rates will rise for no apparent reason. This is normally due to their need to increase deposits to fund loan demand. For Banks, they can raise funds on the open market. For credit unions, their only source of funds is member deposits. So they end up having to offer higher rates to attract deposits. If you see a credit union raising rates, they probably have good loan demand. I would assume that the opposite is true as well. You see crazy gyrations from entities like Hubert. I would assume they raise rates when they need deposits and lower them as they don't. Great for them, not so great for their depositors. I can accept this on GIC's, but I get ticked when a FI does it on their savings because now you have to watch it every day.

As for deposit insurance, others in this forum have covered this well. Customers of Federally regulated financial institutions are covered by CDIC which has limits. Canadian credit unions are provincially regulated and have their own insurance body. Some have limits like CDIC, while others like Manitoba has unlimited coverage by their Deposit Guarantee Corporation. 100% Guarentee. 

http://depositguarantee.mb.ca/home/

Credit unions aren't more risky. In fact I'd argue that they are less risky as they are highly regulated and not allowed to make risky investments like banks are. In fact, no Canadian credit union member has ever lost a penny since the credit union system was created over 100 years ago. If a credit union has difficulty, as many did in the early 80's, they simply merge with another, stronger credit union. Even though i live in Saskatchewan, I have all my money with Entegra in Winnipeg because of their rates for my registered products and Implicity for my savings and GIC's. And I sleep at night very well knowing my money is safe. I'm sure members of the other Manitoba CU's can say the same.