Basic Banking – YoungVestors

Canada has many financial institutions, including banks, credit unions, caisses populaires and trust companies. They offer a variety of services with different fees for each service. It’s sometimes hard to know how to make the best use of them. This module will show you how to get the banking services you need at the best price. It will help you protect yourself from identity theft and other types of fraud. In it, you will learn:

what are the basic services that financial institutions offer
how to choose the type of banking account you need
what your rights and responsibilities are when using a financial institution
how to keep your accounts safe
what to do if you think someone may be using your account illegally.

Throughout the module, you will find learning tools that you can use now and in the future:

an online account selector that compares the features and costs of banking accounts in your province or territory
an interest calculator that lets you estimate how much you can earn with a savings plan
videos that give you tips on getting the most from your banking services
a checklist to help you identify the type of account you need
an action plan of steps to help you manage your banking services.

To choose the best banking plan for you, you first need to know a little about the services financial institutions offer and how you can use them. In this section, you will learn about:

basic banking services, such as deposits and card services
how the deposit insurance system keeps your deposits safe
how to use banking services for your everyday needs.

A financial institution is an organization that provides banking or other financial services for customers. The term banking refers to the deposit, loan and similar services that these financial institutions offer.

While there are many types of financial institutions, in this module the term refers to institutions that take deposits, such as banks, credit unions, caisses populaires and trust companies. Most institutions can offer a similar range of services, although some may not offer everything. While banks and trust companies are owned by investors, credit unions and caisses populaires are owned by their members.

Banks and federally chartered trust companies are regulated by the Government of Canada, and credit unions can choose to be federally regulated. Credit unions, caisses populaires and provincially chartered trust companies are regulated by the provincial and territorial governments.

Definitions

Account: An arrangement with a financial institution to let you deposit, transfer and withdraw money, subject to terms that are defined in the account agreement. Savings accounts and chequing accounts are the two main types of deposit accounts
Account agreement: An agreement that lists your rights and responsibilities and the financial institution’s rights and responsibilities regarding the account
Transaction: Any business done through your account, such as a deposit, a cash withdrawal, a cheque or a bank charge

Banks and other financial institutions offer a wide range of financial services. The main ones for most people are deposit services, card services and loans.

You can deposit your money at a financial institution to keep it safe until you need it. In fact, deposits in most financial institutions are guaranteed up to a certain amount (see Deposit insurance).

When you deposit money in an account, the financial institution may pay you interest. Different institutions usually pay different rates of interest, and interest is higher on some types of accounts than on others. That’s why it’s important to compare and choose the account that best meets your needs.

Savings accounts can pay higher rates of interest than other banking accounts, but they may have extra charges when you take money out of the account.
Chequing accounts pay low interest or none at all, but you can write cheques or make withdrawals at any time.
Chequing/savings accounts combine some features of both types of accounts.

Tip

Other ways to hold your money are also available, which may pay a higher return than interest on banking deposit accounts. You can read more about them in the Investing module.

You pay for your banking transactions with a fee, usually a set number of transactions for a flat monthly fee or a fee for each transaction. (See Banking accounts and packages for more on fees.)

When you deposit a cheque to your account, financial institutions will normally hold the money for several days before they let you withdraw it. This gives them time to transfer the money from the cheque writer’s account to yours, and to confirm that there is enough money in the account to cover the cheque. You may be able to ask your banking institution to reduce or waive the delay.

Most financial institutions offer you an electronic card, usually called a debit card or bank card, that lets you do transactions at a cash machine. You can use it in two main ways:

You can make deposits, withdraw cash, pay bills, transfer money from one account to another and view your account at your financial institution’s automated teller machine (or ATM, also called an automated banking machine or ABM). You can also use it to withdraw cash from another financial institution’s ATM.
You can pay for purchases at a store or other merchant that offers debit card payment services. You can also ask the merchant to take out more than you need for the purchase and give you the extra cash back. When you use the merchant’s card reader, the bank sends money from your account to the merchant’s to pay for what you bought.

Often, you type in a secret personal identification number, or PIN, to use the card. Some cards, as well as tags, cellphones and other devices, allow payments for small amounts without using a PIN. The PIN is your password to your account, telling your financial institution that you want them to take money from your account. Keep the PIN secret to prevent anyone from using your card improperly. (Read more about debit card protection in the Your rights and responsibilities and Banking and fraud sections.)

A credit card is a different type of card service, which is described in the Loans section.

In addition to keeping your money in a financial institution, you may also be able to borrow money. Financial institutions lend the money that people deposit and charge interest to the borrowers. Common types of loans are:

Mortgages: Loans, usually for buying a home or property, in which the lender can take possession of the property if you default on your mortgage payments. Your property is a security or guarantee for the loan.
Lines of credit: An arrangement that lets you borrow money when you need it (up to a limit) and pay it back when you are able, provided that each month you pay a minimum amount established by the financial institution.
Credit cards: An arrangement under which a financial institution pays a seller for purchases you make, and you pay the institution back. You pay interest if you don’t pay the entire amount on time. (This is different from a debit card: with a debit card, the financial institution takes money directly from your account to pay the seller. With a credit card, the financial institution uses its money to pay the seller, and you later pay it back.)

To take out a loan from a financial institution, you fill out an application that lets the institution judge whether you are able to pay it back on time, based on criteria that it has defined. If it agrees to lend you money, you have to pay it back with added interest. Usually you have to make a payment every week, every two weeks or every month according to what your loan agreement specifies.

For more about borrowing and the cost of loans, see the Credit and debt management module.

Financial institutions in Canada are well regulated and have not gone bankrupt for decades, but it has happened in the past. When a financial institution fails, it could be unable to pay back the money its depositors put into their accounts. That’s why most institutions that take deposits are members of a deposit insurance system.

Deposits in banks and many trust companies are insured by the Canada Deposit Insurance Corporation (CDIC) to a maximum of $100,000 per depositor when the funds are held in an eligible account with a member of the CDIC. Deposit institutions chartered by Quebec are insured by the Autorité des marchés financiers (AMF). For full details, go to the CDIC website or the AMF website.

Credit unions and caisses populaires are insured to a level set by each province. In British Columbia, Alberta, Saskatchewan and Manitoba, the amount insured for eligible accounts is unlimited, while other provinces offer different levels of protection. For details, go to the website for your province:

Provincial credit union deposit insurers:

Credit Union Deposit Insurance Corporation of Britsh Columbia
Alberta Credit Union Deposit Guarantee Corporation
Saskatchewan Credit Union Deposit Guarantee Corporation
Deposit Guarantee Corporation of Manitoba
Financial Services Regulatory Authority of Ontario
Autorité des marchés financiers (Quebec) (for provincially chartered trust companies, caisses populaires and insurance companies)
Credit Union Deposit Insurance Corporation (Prince Edward Island)
Nova Scotia Credit Union Deposit Insurance Corporation
New Brunswick Credit Union Deposit Insurance Corporation
Newfoundland and Labrador Credit Union Deposit Guarantee Corporation

To protect your money, check if the financial institution is a member of one of the deposit insurance systems. Each deposit insurance system has its own terms and conditions, so be sure to ask whether or not your deposits are protected.

Financial institutions offer you many different ways to do your banking. Each has benefits and disadvantages. Review this list to determine the best options for your needs.

How you bank	Advantages	Disadvantages	When to use
In person	personal relationship with staff personal advice and answers to questions secure interior location	limited hours and locations may require an appointment may charge higher service fees	when opening a new account when you need to sign papers, such as an account agreement when you want a personal discussion
By phone	personal advice and answers to questions available from any phone often available outside of business hours	cannot handle cash or papers that need to be signed communication can be more difficult	when you need to talk to someone, especially after regular banking hours
By Internet or mobile device	can check your account, transfer money and pay bills at any time from any computer or mobile phone with a secure Web connection no paperwork needed may be less expensive may be possible to communicate to banking staff via Internet	cannot handle cash or papers that need to be signed may not be able to ask questions except by email may not offer easy access to Internet or mobile networks for cost or other reasons	when you have a secure Internet connection when you want to do banking from your home or office when you are travelling
By automated teller machine	can get cash from machines in many locations can make deposits, pay bills and transfer money at your own financial institution’s machine can avoid branch line-ups can bank outside of regular hours	may charge fees may not be in a convenient location may not feel safe may hold your deposit for a longer period	when you need to get cash or make a deposit
By debit card reader (point-of-sale terminal or POS)	no need to carry cash prevents you from spending money that isn’t in your account shows purchases in your account without delay	may be slower than using cash may charge fees card readers sometimes misused for fraud some sellers don’t take debit cards	when you want to pay for items from your account when you don’t want to carry cash when you prefer not to use a credit card

Financial institutions help you manage your money with basic services, and they can also help you meet your financial goals with more advanced services. Most can offer you financial advice to help you save, and they can also help you invest your money. (But remember to get advice from a variety of different sources and choose an investment that meets your needs. See the Investing module for details.)

One important tool your financial institution can offer you is an automatic transfer to your savings account.

For many people, the hardest part about saving is simply not spending money when they have it. When there is money in your account, it’s tempting to spend it on things you want today—whether on small things like an afternoon coffee, or more expensive things like a new music player.
When you transfer money out of your chequing account into your savings account, it’s easier to keep it for long-term spending needs, like buying a home or paying for an education.
Your financial institution can set up an automatic transfer so that you put money into your savings account or an investment account every month. Your savings will grow, and you won’t have to choose between saving and spending.

Banks, credit unions, caisses populaires and trust companies are key financial institutions that take deposits.
These financial institutions offer a variety of services to help you manage your money and keep it safe.
Main services include a safe place to deposit your money; access to your money through debit cards; and loans such as mortgages, lines of credit or credit cards.
You can use banking services in person, online, by phone or mobile and through automated teller machines.

At the end of the module, you will find an Action plan. This is a tool that you can use to track your progress and take the next steps to manage your banking successfully in the future. Use the action plan as a roadmap for financial action!