In Canada, we have four main types of financial institutions. They are:
- Insurance companies;
- Trust companies; and
- Credit unions.
The most well-known of the financial institutions is probably the bank, because most Canadians have bank accounts and deal with banks on a regular basis. The federal government in Canada regulates banks.
Banks are deposit-accepting institutions, which provide customers with a secure place to store their money and other assets. A bank’s original purpose was to offer clients a safe place for their money as people had the tendency, centuries ago and even just decades ago, to store their money in their home or on their person. It wasn’t unheard of for people to store money under their mattress.
Today banks have diversified in the way in which they store client money and the ways in which customers can access their money.
Banks today offer debit cards, cheques, credit cards, wire transfers and more thanks to technological advances, which means most people no longer keep large amounts of money either in their home or on their person.
However, banks are not only deposit-accepting institutions; they are also institutions that give loans. Banks give many types of loans: from business and student loans to mortgage loans. Of course, banks don’t lend money for free; they charge an interest rate that allows them to make a profit.
Banks also often offer investment opportunities such as mutual funds and stocks.
Insurance companies are in the business of providing some sort of security against injury, sickness, disability, and loss in the case of death. Insurance companies charge clients premiums and in turn assure large groups of people that they will be compensated in case something happens to them. Such companies are able to make these offers by pooling risk. As they often insure very large groups of people they are able to turn a profit.
There are many types of insurance: auto insurance companies, home insurance companies, life insurance companies, and mortgage insurance companies. Sometimes one insurance company will offer a variety of products for consumers. For example, a lot of companies offer auto and home insurance together.
Trust companies are companies that work under either federal or provincial legislation and perform functions similar to a bank. Trust companies also have a role that banks do not; they can act as a fiduciary. As a fiduciary, trust companies can administer estates, trusts, pension plans and agency contracts.
Credit unions are locally-owned financial cooperatives. Profits are not reinvested in the market but rather in their communities.
Their members own credit unions and each member has a vote, regardless of how much money a member has in their account. Members are democratically elected to the board.
Credit unions are also fully provincially regulated and are often established to serve a particular group of people.
What kinds of financial institutions are there?
Banks and credit unions in Canada: what is the difference?