5 Alternatives to Banks in Canada For 2023

Traditional banks have long been the primary choice for individuals and businesses to manage their finances. 

However, alternative financial institutions have emerged as viable options for those looking for more flexibility, lower fees, better rates, and customer service. 

In this article, we will explore five of the most popular alternatives to banks in Canada for 2023.

Let’s get started!

1. Fintech

Fintech, short for financial technology companies, are alternative financial institutions that have emerged in recent years as a response to the limitations and drawbacks of traditional banks. 

One of the main advantages of fintech over traditional banks is their ability to leverage technology to provide faster, cheaper, and more convenient financial services. 

Fintech companies typically offer online or mobile banking platforms that allow customers to perform a wide range of transactions from their smartphones, such as:

  • Opening accounts
  • Transferring money
  • Saving money
  • Paying bills 
  • Applying for loans

In addition, fintech companies often use data analytics and artificial intelligence to offer personalized financial advice and recommendations based on the customer’s spending habits and financial goals. 

This helps customers make better financial decisions and improve their overall financial health.

Moreover, fintech companies in Canada are often more accessible to underserved communities and individuals with limited access to traditional banking services. This includes people living in rural areas, newcomers to Canada, and those with poor credit or no credit history. 

However, fintech companies also have their drawbacks. For instance, they may not offer the same level of security and regulatory oversight as traditional banks. Moreover, they may not have the same level of trust and brand recognition among consumers as established banks.

Overall, fintech companies in Canada are a promising alternative to traditional banks, offering faster, cheaper, and more convenient financial services that cater to the needs of a growing segment of digitally-savvy customers. 

Here are some of the best online banks in Canada.

2. Credit Unions

Credit unions are a popular alternative to traditional banks in Canada. A credit union is a non-profit financial institution that is owned and operated by its members. 

Unlike traditional banks, which are owned by shareholders and focus on maximizing profits, credit unions are owned by their members, who are also their customers. 

This means that credit unions are able to focus on providing personalized financial services and building strong relationships with their members.

Credit unions offer a wide range of financial products and services, including:

  • Savings accounts, 
  • Chequing accounts
  • Loans
  • Lines of credit 
  • Mortgages
  • Credit cards
  • Investment services. 

Some Canadian credit unions offer online and mobile banking options, making it easy for members to access their accounts and manage their finances from anywhere.

One of the key benefits of credit unions is that they are community-based. This means that they are focused on serving the needs of their local communities, rather than trying to compete with larger, national banks. 

Credit unions are often involved in local community initiatives and may offer special programs and services that are tailored to the needs of their members.

Another advantage of credit unions is that they typically offer lower fees and interest rates than traditional banks. 

This is because credit unions are nonprofit organizations and are not focused on maximizing profits. Instead, they aim to provide affordable financial services to their members.

Credit unions also have a strong focus on customer service. Because they are owned and operated by their members, credit unions are able to provide a more personalized and responsive service than traditional banks. 

Members are often able to speak directly with decision-makers and receive personalized advice and support for their financial needs.

In Canada, there are over 250 credit unions, with a total membership of over 5 million people. Credit unions are regulated by provincial authorities, which ensure that they operate safely and soundly and provide high-quality financial services to their members.

Some of the top credit unions in Canada include:

  • Alterna Savings and Credit Union
  • First Ontario Credit Union 
  • Meridian Credit Union 
  • Steinbach Credit Union
  • Desjardins Credit Union
  • Vancity Credit Union (read review)

3. Online Brokers

Online brokers offer a range of services such as trading in stocks, bonds, and other securities, investment advice, mortgages, and retirement planning.

One of the main advantages of online brokers is that they offer lower fees and commissions compared to traditional banks. This is because online brokers do not have the overhead costs of maintaining physical branches and can pass on the savings to their clients. 

As a result, clients can save money on their investment transactions and achieve higher returns on their investments.

Online brokers also provide greater flexibility and convenience compared to traditional banks. 

Clients can access their accounts and conduct transactions from anywhere at any time through their smartphones, tablets, or laptops. This allows for greater control over their investments and the ability to react quickly to market changes.

Investment brokers such as Wealthsimple offer all-in-one financial solutions. With Wealthsimple, you can

  • Invest
  • Earn interest on a savings account, 
  • Transfer money 
  • Spend with a prepaid card
  • File your taxes 

If you’re looking for the best mortgage rates in Canada, all you need is to get an online mortgage broker like Butler or Nesto Mortgage.

However, it is important to note that online brokers are not a substitute for banks when it comes to banking services such as chequing and savings accounts, loans, and mortgages. You may need to use a bank and an online broker to meet your financial needs.

Moreover, it is important to research and compare different online brokers before selecting one to ensure that they meet your specific investment needs and goals.

Learn about online self-directed brokerages under the following reviews:

4. Peer-to-Peer Lending Apps

Peer-to-Peer (P2P) lending apps provide a platform for individuals to lend money directly to other individuals or small businesses, without the need for a middleman such as a bank. 

P2P lending apps have gained popularity in recent years due to their:

  • Ease of use
  • Lower interest rates
  • Quick loan approvals.

These apps work by connecting lenders with borrowers. Borrowers apply for loans through the app and provide information about their credit history, income, and other relevant details. 

The app then evaluates the borrower’s creditworthiness and assigns them a risk rating. This rating is used to determine the interest rate that the borrower will pay on the loan. The higher the risk rating, the higher the interest rate.

Lenders can then review the loan requests and choose to invest in the loans that match their investment criteria.

P2P Lending Apps benefits

One of the main benefits of P2P lending apps is the lower interest rates compared to traditional banks. This is because the app does not have the same overhead costs as a bank, and can therefore offer more competitive rates to borrowers.

Additionally, P2P lending apps often have more flexible lending criteria, which means that borrowers who may not qualify for a loan from a traditional bank may be able to secure a loan through a P2P lending app.

Another benefit of P2P lending apps is the quick loan approval process. Borrowers can apply for a loan through the app and receive approval within minutes, rather than waiting days or weeks for a traditional bank to process their application.

However, P2P lending apps do come with some risks. As with any investment, there is the risk of default. If a borrower defaults on their loan, the lender may lose their investment. P2P lending apps typically have measures in place to mitigate this risk, such as assigning risk ratings to borrowers and providing insurance on loans.

An example of a P2P lending app in Canada is goPeer.

5. Robo-Advisors

Robo-advisors are a popular alternative to traditional banks in Canada for investment management services. 

These are online platforms that use algorithms and automation to provide investment advice and manage portfolios. They offer a low-cost and accessible way for Canadians to invest and manage their wealth.

Robo-advisors work by asking investors a series of questions to assess their:

  • investment goals
  • risk tolerance and
  • financial situation

Based on this information, the robo-advisor uses an algorithm to recommend a portfolio of exchange-traded funds (ETFs) or other investment products that are tailored to the investor’s needs. 

Once the portfolio is created, the robo-advisor will continuously monitor it and make adjustments as needed based on market conditions and the investor’s goals.

One of the main benefits of robo-advisors is their lower fees compared to traditional banks. Traditional banks often charge high fees for investment management services, which can eat into an investor’s returns over time. 

More on Robo-Advisors

Robo-advisors, on the other hand, typically charge lower fees as they have lower overhead costs. This makes them an attractive option for those who are looking for a cost-effective way to invest.

Another benefit of robo-advisors is their accessibility. Investors can access their accounts and manage their portfolios online, which is convenient for those who prefer to manage their finances digitally. 

Additionally, robo-advisors often have zero or lower minimum investment requirements than traditional banks, making them accessible to a wider range of investors.

However, robo-advisors do come with some limitations. For example, they may not be suitable for investors who have complex investment needs or require more personalized advice. 

As such, you need to carefully consider your investment needs and preferences before choosing a robo-advisor.

Below are some of the best robo-advisors in Canada:

VirtualWealth Review

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About John Adebisi

John Adebisi is a CPA, FCCA and MBA holder with a Bachelor's degree in Accounting & Finance. He has over a decade of experience in writing personal and business finance content for audiences across North America, Europe, the UK and Africa. In addition to his writing experience, he also has a strong background in financial research and analysis, giving him a unique perspective of the financial markets. John derives pleasure in helping people make smart financial decisions, and he believes that knowledge and experience can be valuable resources for anyone who wants to learn how to manage their money.

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