Banking Guide for New Comers in Canada
How important is banking guide for newcomers? Canada is a top destination for individuals from around the globe looking to immigrate. Its banking industry stands out as one of the most stable and conservative among developed nations. In Canada, personal banking accounts are treated as products rather than services, allowing individuals to reconsolidate various accounts into portfolios. This means the workings of Canadian banks might differ slightly from the banking experiences newcomers are accustomed to in their home countries.
One distinct practice in Canadian banking is the explicit exposure and charging of fees for personal banking products, including variable monthly fees, annual fees, transaction fees, and more. Furthermore, checking accounts in Canada offer more than just transaction facilities; they can be integrated with several other products and services, such as access to a safe in a vault, or waivers for annual fees on premium credit products.
In contemporary times, visiting a banking center is no longer solely about accessing a money vault; it has evolved into a hub where representatives from various functional or business units of a financial group converge. These units include personal banking, mortgages, security, leasing, business banking, private banking, and more.
To truly understand the nuances of personal banking in Canada, it is beneficial to start with the following key products:
- Checking Accounts
- Savings Accounts
- Term Deposit / Guaranteed Investment Savings Accounts
- Mutual Funds Accounts
By familiarizing oneself with these options, one can gain a clearer insight into how savings, GICs, and mutual funds operate, and how interest or profits are generated.
Checking Accounts
- A checking account is usually the first and most fundamental credit account that a person may have in their life.
- Usually, it comes with a monthly fee if the minimum daily or monthly closing balance is not met. The monthly fee may be discounted if the account holder is underage or a senior citizen.
- Most of the money in a checking account stays within the banking unit, depending on whether it is a personal, commercial, or private banking unit.
- Insufficient Funds (NSF) may result in penalties and a dent in the credit record if not addressed promptly.
- Depending on the type of checking account, it may come bundled with a corresponding grade of credit card product that may exempt the annual fee.
- Usually, no interest is paid, regardless of the balance.
- You may choose to use a paper check or e-Transfer, which works as an electronic alternative to a check.
- Usually does not require SIN (Social Insurance Number) when the account is first opened.
- It may be subject to overdraft protection mechanism, which allows free usage if the daily balance is greater than or equal to zero. Otherwise, there may be corresponding fees or penalties, but it will not immediately impact credit record or result in an immediate negative credit record.
Saving Accounts
A saving account is usually the first and most fundamental banking account that a person would have in their life.
- Usually it does not come with a monthly fee, or the minimum daily or monthly closing balance is very low and easy to achieve.
- Most of the money in a saving account stays within the banking unit, depending on whether it is a personal, commercial, or private banking unit.
- In event of a cheque transaction occurs, insufficient Funds (NSF) may result in penalties and a dent in the credit record if not addressed promptly.
- Most saving account does not bundle with other banking product.
- Often time that interests are calculate base on the daily closing balance, and then paid monthly, quarterly, semi-annually or annually depending on the terms and conditions of the account.
- Any cheque or e-transfer transaction that moves money out of the host bank network may cause relative expensive transaction fee than a checking account.
- Usually may require SIN (Social Insurance Number) when the account is first opened, for saving account may generate annual interest more than 50 dollars, which is the minimum that requires filing T5 slip.
Term Deposit / Guaranteed Investment Certificate (GIC) Accounts
A term deposit or guaranteed investment certificate (GIC) account is often the first and most foundational investment accounts many people will have in their lifetime.
- A term deposit is akin to a certificate of deposit (CD) commonly found in US and foreign banks. A typical term deposit offers a non-zero positive interest rate.
- Depending on where the funds are allocated, regular GIC funds typically go towards mortgage or leasing units within a bank’s parent financial group, always with a positive interest rate. Conversely, market-linked GIC funds are usually invested in security or low-risk fund units and may come with capped variable interest rates, potentially resulting in zero interest.
- Term deposits are generally non-redeemable, although some GIC plans offer cashable alternatives where interest rates may be reset upon partial withdrawal.
- Interest rates may vary based on the invested principal or the investment term duration.
- A Social Insurance Number (SIN) is required upon account opening.
- These investments are best suited for short-term durations not exceeding 5 years. In event of very rare seen occurrence, some financial institutes do offer 6 or 7 years long GIC, and it usually are for capital market-linked GIC.
Mutual Funds
A mutual funds account is very similar to a GIC account. Besides having no principal or investment guarantee, there is no cap on interest or earnings. Additionally, there are several advantages such as:
- A risk tolerance assessment is usually conducted before opening a portfolio account.
- Depending on one’s banking history with the bank, an individual may be allowed to invest in a product category that is one grade higher with the branch manager’s approval and a manual override.
- Often, funds invested in fixed-income or comfortable-income categories are placed into low-risk, money market-linked business units, whereas funds invested in high-income categories are placed into higher-risk, capital market-linked business units, the stock market, futures, or other derivatives.
- A Social Insurance Number (SIN) is required upon account opening.
- These investments are best suited for long-term durations, intending to last at least 5 years or longer.
Comparison of Canadian Checking and Savings Accounts:
- In Canada, both checking and savings accounts offer easy access to funds through bank branches, ATMs, and digital banking services, with deposits insured up to $100,000 by the Canada Deposit Insurance Corporation (CDIC).
- Both account types can accrue interest, providing a way for account holders to earn from their deposits, although the rates and structures for interest may vary.
Contrast between Canadian Checking and Savings Accounts:
- Canadian checking accounts are tailored for daily financial transactions and frequent access, including direct deposits and bill payments, often with no limits on transaction numbers.
- Savings accounts in Canada are designed for long-term savings with higher interest rates and are subject to transaction limitations to encourage savings growth and financial stability.
Comparison of Canadian GIC and Mutual Funds Accounts:
- Both Guaranteed Investment Certificates (GICs) and mutual funds in Canada are popular investment options that aim to provide returns on capital, and are offered by banks and financial institutions.
- Investors in both GICs and mutual funds benefit from the regulatory protection under Canadian financial laws, ensuring a degree of security in their investments.
Contrast between Canadian GIC and Mutual Funds Accounts:
- GICs offer a fixed interest rate and return over a specified term, providing a safe and predictable investment, whereas mutual funds involve investing in a variety of assets, offering potential higher returns with corresponding higher risks.
- While GICs lock in funds for a fixed period, typically without early withdrawal options, mutual funds offer more flexibility in terms of liquidity, allowing investors to buy or sell shares based on market conditions.
