7 | Banking

Withdrawal

In banking, this means taking money out of an account.

Savings Account

A bank account where you can put your money to save it for future expenses.

Interest Rate

The amount, usually expressed as a percentage, that determines how much additional money you pay (loan) or receive (investment) when borrowing or lending money.

Interest

Extra money paid to someone else when you borrow money or money that may be paid to you when you have invested money.

Insurance

Financial protection against possible loss or damage. You could have insurance on your house, car or life. In the event of accidental damage to the insured property or person, you would receive money to help deal with the situation.

Income

The amount of money a person has coming in to their household.

Expenses

Items that money is spent on, such as rent, food, bus fare and clothing.

Deposit

Putting money into an account. Cash, cheques and electronic transfers that are added to your account are called deposits.

Debit Card

A card issued by your bank that allows you direct access to your bank account. You can use your debit card to deposit or take money out of your account at an ATM. You can also use your card to make purchases at stores, restaurants and businesses that have a debit machine.

Credit Union

A financial institution similar to a bank and that provides many of the same services as a bank. Credit unions suggest they focus more on their members rather than profits and are an important contributor to their community.

Credit Card

A card that represents a credit agreement. A bank or financial institution may give a credit card that can be used to pay for goods or services before the money is actually deposited in the account. The credit card owner agrees to pay back the borrowed money at a designated time. If full payment is not made on the payment date, interest will usually be charged.

Credit

Money that a bank, business, or person allows someone else to use and then pay back in the future.

Consumer

A person who buys goods or services.

Child Tax Credit

A benefit received from the Government of Canada that provides financial assistance to help eligible families pay for some of the costs of raising their children who are under the age of 18.

Chequing Account

An account you set up at the bank that allows you to transfer money to other people using cheques.

Cheque

A piece of paper that you can use to give permission for a bank to give money from your bank account to someone else. You can use cheques instead of cash. Cheques are usually printed by your bank and you fill in the information about who you want to give the money to and how much money you want to give, and then sign it. The amount you write on the cheque is withdrawn from your account, by the bank, and given to the person/business to which you wrote the cheque.

Bank Account

An account you have at the bank where you can deposit and/or withdraw money.

ATM

Automated Teller Machine. Machines where, using a bank card, you can access your bank accounts to withdraw or deposit money, pay bills or transfer money between accounts.

This section provides an overview of financial institutions and how you can use them, with a focus on the value of saving and how to get started. It is broken up into two subsections:

 Objective

A 2004 study noted that some Aboriginal people have never had contact with a financial institution nor had their parents. Financial institutions offer many benefits for managing your money; it’s unfortunate that many Aboriginal people do not access them.

Having an account for your money with a financial institution is one way to keep your money safe, help you save, and manage your finances. After reading this section, you will have a good understanding of the following concepts:

  • Types of financial institutions.
  • What accounts are and how you can use them.
  • How to open an account.

Even if you do not have a bank account, you can still cash a Government of Canada cheque in your name that is under $1,500 for FREE at any financial institution that has tellers. Examples of government cheques include goods and services tax (GST) credits; income tax refunds; old age security benefits; employment insurance; and child tax credit benefits.

Different Types of Financial Institutions

ATM withdrawal

People who are financially fit make decisions that help them enjoy life and ensure their needs are met.

In Canada, there are several different types of financial institutions. The two main institutions people are most familiar with and tend to access are Banks and Credit Unions.

Both keep your money safe and offer services like low cost bank accounts, chequing accounts, savings accounts, life insurance, mortgages, and loans.

The main difference between banks and credit unions is ownership. Credit unions are non-profit organizations owned by their customers, who are called members.

Another difference is that banks are subject to federal laws while credit unions are subject to provincial laws.

Common Questions about Opening an Account

Who opens an account?

Anyone can open an account. Although there is no law that requires you to put your money into a financial institution, there is Canadian law that gives everyone the right to open a deposit account with a financial institution. Here are some things you should know:

  • You can open an account even if:
  • You do not have a job
  • You don’t have money to put in your account right away
  • You have been bankrupt
  • You have a criminal record
  • You owe money
  • A bank or credit union may refuse to open an account for a person if:
  • The person doesn’t provide proper identification.
  • They have reasonable grounds that the account will be used to commit fraud or illegal activities.
  • The person has committed fraud or other illegal activities in the past 7 years. The most common type of fraud is making a fake deposit. Making a fake deposit is when you use your bank card at an ATM to deposit an empty envelope but claim to be depositing money.
  • They think the person trying to open the account is misrepresenting information (not being truthful about the questions they need answered to open an account).
  • They think the person trying to open the account is a threat to other customers or employees and may cause physical harm, harassment, or other abuse.

If a financial institution refuses to open a personal account for you, they must tell you of the refusal in writing. The bank must also tell you how to contact the Financial Consumer Agency of Canada.

What type of account do I need?

Most financial institutions offer different types of accounts, such as chequing accounts and savings accounts. The type of account you need depends on your circumstances.

Some questions to consider when deciding which account is right for you include:

  • Do you own a home business?
  • Do you write cheques?
  • Are you trying to save money?
  • Do you have good credit?
  • Do you have children?
  • Do you need life insurance?
  • Do you use your bank card frequently?

The best way to figure out what type of account you need is to talk to a professional at your financial institution. Together you can discuss your goals and needs and decide what type of account will work best for you.

When is the best time to open an account?

Well, it’s never too early and never too late to open an account. If you have money, want to save money, or need money, it’s time to open an account.

Where do I go to open an account?

You can go to any financial institution to open an account. You want to make sure the institution can meet your needs and has a good reputation. Shop around to see what financial institutions in your area provide the services you need.

Why should I open an account?

People open accounts for different reasons. The main reasons are to keep your money safe and to build credit. This clip highlights a variety of reasons you may want to open an account.

How to Open an Account

To open an account, you need to go into the branch where you’d like to open an account in person. You need to bring your identification with you. All financial institutions require specific identification to open an account. Below are the choices for identification as published by the Financial Consumer Agency of Canada.

Choice 1 – Show two pieces of ID from List A:

List A

  • Canadian driver's license
  • Current Canadian passport
  • Canadian birth certificate
  • Social Insurance Number (SIN) card
  • Old Age Security card with your Social Insurance Number (SIN) on it
  • Certificate of Indian Status
  • Provincial or territorial health insurance card (this cannot be used in Ontario, Prince Edward Island or Manitoba)
  • Certificate of Canadian Citizenship or Certification of Naturalization
  • Permanent Resident card or a Citizenship and Immigration Canada form IMM 1000, IMM 1442, or IMM 5292

If you don't have two pieces of ID from List A above, you can use choice 2 or 3.

Choice 2 – Show one piece of ID from List A and one piece of ID from List B, below:

List B

  • Employee ID card with your picture on it
  • Debit card or bank card with your name and signature on it
  • Canadian credit card with your name and signature on it
  • Client card from the Canadian National Institute for the Blind with your picture and signature on it
  • Current foreign passport

OR

Choice 3 – Show one piece of ID from List A and have someone the bank knows confirm that you are who you say you are.

Once you provide your identification to the teller, they will ask you a series of questions to identify what type of account will best suit you.

This process could take some time so it’s important to make an appointment with your financial institution. This ensures that both you and your financial institution set aside the time required to open an account.

 Learning Resources

Visit this page on the Financial Consumer Agency of Canada’s website to explore what type of savings or chequing account is right for you.

 Tips Just for You…

Teens

It’s never too early to start building your credit. By opening an account you can begin to build a relationship with your financial institution and build your credit at the same time. There are many benefits for a young person opening an account. Here’s how you can learn more:

1. Make a list of all the questions you have about banking and opening a bank account.

2. Do an Internet search on the financial institutions you want to know more about. You may want to choose a branch close to where you live or work. See if you can find answers to your list of questions.

3. If you still have questions call the financial institutions, they’d be happy to help.

4. Make an appointment at the financial institutions you are considering. Making an appointment ensures the staff will set aside the time to sit with you and go through your questions.

5. Talk to friends and family members that you trust. Is there someone you admire because of their ability to manage their money? Talk to them and get advice on how they chose a financial institution.

Families

Juggling all your family responsibilities can be overwhelming. Kids, soccer practices, walking the dog, getting groceries, making dinner…ugh who has time to pay bills!?

You do! Have you ever thought about online banking? When you bank online you can set up your bills to be paid automatically on your payday. Canada Post even works with financial institutions to deliver free online mail. You can receive, print, pay, and store over 200 bills. This free online mail service delivers phone, hydro, cable, and credit cards bills all online.

If you have a phone and computer and are registered with your financial institution for online banking, you have everything you need to simplify paying your bills. Call the number on the back of your debit card and the customer service representative can walk you through how to set up automatic bill payments.

 Objective

This section covers why and how to save money. Chances are if you are earning money, you are spending money, and if you are spending money you should be saving money too.

Not surprisingly, saving money does not come naturally to most people. As we learned in the other sections of this handbook, most behaviours related to how we spend and manage our money take planning, time, and effort. The same is true for saving. If you take the time to plan and make the effort to follow the plan, you will achieve your goals. The trick is to acknowledge the importance of saving, make it part of your plan, and stick to it. After reading this section, you should understand the following concepts:

  • What saving means.
  • Why people save money.
  • How to save money.

What Does Saving Mean?

Saving can mean spending less than full price for an item, like buying something on sale, and it can also mean putting money away for a later date. We will explore both concepts of saving in this section.

To “save” means to take the money out of your cash flow and put it somewhere where it remains unspent.

Alex is shopping around for a new cell phone. He finds one on sale that is $20 cheaper than what he budgeted for and buys it. Is he saving money?

Yes, at this point, he is saving because he spent less than what he planned to spend.

Now what if he spends the $20 he saved on the purchase price to buy a cell phone case. Is he saving money?

No, because he didn’t spend less money than he budgeted. He spent the full amount that he allowed for the purchase of a new cell phone.

This example demonstrates the definition of saving as meaning spending less. Now, let’s look at a different definition of saving ― putting money away for a later date.

Money expert, Gail Vaz Oxlade, explains saving like this:

To “save” means to take the money out of your cash flow and put it somewhere where it remains unspent. You may have a short-term goal for that money… like buying a new computer. Or you may be putting that money away for the long term – like retirement. But you have put the money somewhere and can look at it and say, “Hey, I saved that money.”

Based on the money expert’s definition of saving, Alex did not save.

Although, Alex had a cost savings when he spent less than he had budgeted to buy the phone, he spent the money he saved on something else. If, instead of spending the $20, Alex put the money into his savings account, he would have saved according to the money expert’s definition.

Why Save?

Sometimes items that we want or things we want to do cost more money than we have. We can either go without those things or we can put some money aside regularly and save until we have enough money to buy the thing we want.

Everyone saves money for different reasons. We all have different goals and different values about saving and spending money. Here are some examples of why people save money:

Retirement – when we are finished our working careers and ready to leave employment, we need to have money to live on.

A down payment for a house or first and last months’ rent – if you are currently living with your parents rent free, chances are that sooner or later you will want to move out and have a place of your own. If you want to buy a house, you need to save money to use as a down payment on a mortgage. If you plan to rent a place to live, you still need to save money for the first and last months’ rent.

Vacations – many people enjoy travelling and like to take vacations. To pay for a vacation, you need to save for flight tickets, travel insurance, food and lodging, and all the other costs that go along with taking a vacation. Amount saved each month Interest Rate Total Accumulated in 5 Years Total Saved Total Interest
Grayson $500 0% $15,000.00 $15,000.00 $0
Maddex $500 3% $15,450.00 $15,000.00 $450.00

Savings accounts, term deposits and guaranteed investment certificates (GICs) are three options available to help people save money. The Social and Enterprise Development Innovations (SEDI) provides these definitions and summaries:

Savings Account

  • Depositor (you!) receives a passbook in which deposits and withdrawals are recorded.
  • Average interest rate is fairly low and may vary slightly from institution to institution.
  • Funds are easily accessible, in person, at an ATM, or through Internet banking.
  • Some accounts make it more difficult to access this money. You would have to transfer it to a chequing account.
  • Passbook can be updated at an ATM or by the teller

Term Deposits

The financial institution pays a fixed amount of interest for a fixed amount of time, usually for longer than one year.

  • Benefits
  • No risk
  • Simple
  • No fees
  • Offers higher interest rates than savings accounts and lower interest rates than a GIC
  • Trade-offs
  • Money ―locked in‖ for a fixed term compared to a savings account where funds are easily accessible
  • Withdrawal penalty if cashed before the end of the fixed term (the penalty may be higher than the interest you earned)

Guaranteed Investment Certificates (GICs)

The financial institution pays a fixed amount of interest for a fixed amount of time, usually for longer than a year.

Most institutions require a larger minimum deposit than for a term deposit.

  • Benefits
  • No risk
  • Simple
  • No fees
  • Offers higher interest rates than savings accounts and Term Deposits
  • Trade-offs
  • Money ―locked in‖ for a fixed and longer term compared to a term deposit
  • Withdrawal penalty if cashed before the end of the fixed term (the penalty may be higher than the interest you earned)

Everyone saves for different reasons. What you save for and how you save will vary depending on your goals, income, and expenses. You may have short or long term savings plans. Here are some examples:

Short-term savings could be saving for a vacation, wedding, guitar, bike, or computer. Generally, short-term means 2 years or less.

Long-term savings could mean saving for retirement, a down payment for a house, or your child’s education. Generally, long-term savings means more than 2 years.

 Learning Resources

This link offers easy practical tips on saving money even if you’re broke.

This link for parents provides easy to follow family discussions and activities for children and youth aged 5 – 15.

This link offers a variety of helpful resources for children through to seniors. Here you can learn about savings, retirement planning, and estate planning and tax benefits to name a few.

This link from the same website offers tips specific to saving.

This video offers some options available when considering investing:

 Tips Just for You…

Teens

Did you know that if someone invested $1,000 a year for seven years while they were between the ages of 19 and 25 and then invested nothing more that, at age 65, they would have more money than someone who waited until they were 26 and invested $1,000 a year for 40 years?

Families

Transferring just $50 a week to a higher-interest saving account can add up to $2,600 plus interest in just one year.

Shifting your mortgage payments from monthly to accelerated bi-weekly can help you pay your mortgage off sooner and save you lots of money in interest.

Using your debit card frequently could add up to over $30 a month in service charges, that’s $360 a year! Make sure you get on a banking plan that suits your day-to-day banking needs so you don’t pay more than you need to.

Take the next step:  8 | Taxes

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