How to Navigate the Canadian Banking System

03 November 2018 by National Bank
How to navigate the canadian banking system

One of the first things you should do when you move to a new country is familiarize yourself with its banking system. A credit report, chequing and savings accounts, a line of credit—for a newcomer, understanding the nuances of these new concepts isn’t always easy. Need help? Here are the ABCs of the Canadian banking system.

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At first, the Canadian banking system may seem complicated. But before long, with the right information, you'll have a better understanding of it and you'll gain confidence with managing your finances.

How to manage your assets

Opening a bank account in Canada is a must. It gives you the opportunity to deposit and withdraw money, carry out purchases, transactions and bill payments, deposit your salary and even issue cheques. With a bank account, you can access your money at anytime, anywhere—even on your mobile phone! Simply put, it makes managing your financial assets easy.

Types of accounts

There are many types of accounts. A transactional account, also called a chequing account, allows you to perform several transactions in the form of deposits or withdrawals. Meanwhile, a savings account allows you to deposit a surplus of money you don’t need for current expenses. Foreign-currency accounts and other specialty accounts, such as the High Interest Savings Account, are also available.

How to open a bank account

Head to a bank (we call them “branches” in Canada) or make an appointment at a Canadian financial institution with an advisor. Plan to bring official documents, such as a valid passport and your Immigration and Citizenship Canada paperwork. Some financial institutions even allow you to open an account remotely using their website.

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Personal cheques

By issuing a personal cheque, an account holder can order their bank to transfer a specific amount of money from their account to the account of a beneficiary. In Canada, personal cheques are used to pay for certain expenses, such as rent.

Moreover, cheques provide banking information to potential service providers for recurring payments, and, to employers to directly deposit your salary. Cheques include the issuer’s name and account number, their financial institution’s three-digit identification number (006 for National Bank) and a five-digit code associated with the branch.

Online banking transactions

Generally, you can securely use the internet to carry out your banking transactions. However, you should always ensure that:

·  The website is correct for the banking institution or company with whom you want to make the transaction.

·  The website is secure. You’ll know this by the presence of the letter “s” after “http” in the URL, among other indicators. For example:

Deposit insurance

In Canada, major financial institutions are members of the Canada Deposit Insurance Company (CDIC), which covers Canadian-dollar deposits payable in Canada up to $100,000. However, if you have money in U.S. dollars or another currency, these deposits are not insured.

What is the difference between a debit card and a credit card?

The Canadian banking system works with two complementary cards: a debit card and a credit card. A debit card is a payment card linked to both your chequing and savings accounts. Every expense, whether a purchase or a withdrawal, is removed from your account in real time.

In contrast, with a credit card (such as Mastercard), expenses (such as online purchases or your cell phone bill) are accumulated. The balance must be repaid each month, and if not, you are subject to interest payments the following month.

Credit cards are very important, as they help build your credit history. The better your credit report, the more you will be considered trustworthy by financial institutions. Thus, it will be easier for you to get certain types of loans, such as a real estate loan, known as a “mortgage loan” in Canada. Good credit also allows you to get better rates.

Credit card applications can be made online, at a branch or by telephone. When you apply, the bank conducts a study to determine whether or not to approve you and issue you the card.

Four reasons to get a Canadian credit card

·  It is a practical and secure way to pay for purchases and current expenses.

·  It is often required for certain transactions, such as signing a cell phone contract, renting a car or making an online purchase.

·  It allows you to purchase in Canadian dollars, which helps you avoid exchange fees when using a card from your country of origin.

·  It helps you gradually build your credit report.

Four tips to use your credit card properly

·  Pay your credit card balance in full every month, before the due date written on your statement, to avoid interest fees and penalties.

·  Plan for a delay of a few days (usually three) for the processing of your payment depending on the method of payment used (at a branch, a banking machine or online).

·  Never share the personal identification number (PIN) linked to your credit or debit card.

·  Avoid having too many credit cards at one time. This could diminish your borrowing capacity.

Line of credit

In order for you to take advantage of new opportunities, quickly respond to unforeseen circumstances, start projects and make payments, you’ll need a flexible and accessible source of funding at all times—even when you’re temporarily lacking cash flow. A line of credit entitles the holder to borrow money at a pre-established interest rate on their own terms, without having to apply for a loan each time. This can really come in handy at times when you need it most.

What makes up your credit history?

In Canada, it’s crucial to have a good credit history. In fact, access to your credit report is required in many cases where you need approval for credit, renting an apartment or even for an employment or insurance application. Your credit history shows your identity, your debt level and whether you are paying off your debts. It’s an excellent way to know your solvency.

As a newcomer, it’s essential to build your credit report. It will facilitate many of your steps moving forward. Although the credit report you established in your home country is not taken into consideration in Canada, it can still prove useful. If possible, save a copy of your credit report or a letter of recommendation from a financial institution in your country of origin.

The two main credit bureaus in Canada are Equifax Canada and TransUnion Canada. They are responsible for the information related to your credit status: collecting your credit information, keeping it up-to-date and making it available to those who need it.

Three easy ways to get a good credit score

·  Sign up for a credit card with a limit you are comfortable paying off without penalty. If you cannot pay your entire balance, make sure you pay the minimum amount required.

·  Pay your bills on time.

·  Avoid too many credit applications. Each credit application is recorded on your credit report. Having too many in a short period of time can affect your score.

Saving methods in Canada

Besides credit, the Canadian system offers numerous products to increase your savings and help you achieve your goals.

Some of these products allow you to reduce your taxes. The most popular is the Registered Retirement Savings Plan (RRSP), whose contributions reduce your annual taxable income. Tax payable is deferred until disbursement, which usually occurs at retirement. There is also the Tax-Free Savings Account (TFSA), that allows a maximum amount of savings each year to grow tax-free.

For your children’s post-secondary studies, the Registered Education Savings Plan (RESP) allows you to save money tax-free and receive grants from the federal government and the Government of Quebec.

Final thoughts

At first, the Canadian banking system can seem complicated, but it’s not. Explore it one step at a time and, above all, don’t hesitate to speak with an advisor at your financial institution. They are there to guide you and respond to all of your questions.

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