At Remitly, we know that moving to a new country involves making a lot of financial decisions. If you’re moving to Canada, choosing the right bank is an important step in ensuring you can start to feel at home.
With so many options to choose between, finding the right bank can feel overwhelming. But with the right information, you can make the best decision for you. Here are some things worth being aware of when it comes to Canada’s banking system.
Canada’s Banking System
As a newcomer to Canada, you can rest easy knowing that Canada’s banking system is one of the most secure and highly regulated in the world.
Canada is dominated by a few big, well-known banks. It is backed by strong deposit insurance through the “Canada Deposit Insurance Corporation” (CDIC). In other words, your money is pretty safe in the hands of Canada’s banks.
The importance of understanding banking for newcomers
Understanding your local banking system can help you make smart decisions about your money, prepare for the future, withstand financial emergencies, and avoid fraud.
It can also make it easier to reach long-term financial goals. Whether you’re saving for retirement, gearing up for higher education, or wanting to purchase a home, having a strong grasp of the local banking system can help you get there.
Financial stability
As you make a big move to a new country, having a strong financial base can help you navigate unforeseen expenses and make the transition as smooth as possible.
- Reduced stress: Immigrating can be a stressful process, but having financial stability can allow you to focus on what matters most, like setting up your new home and building connections with your community.
- Building a financial foundation: Reach long-term goals like purchasing a house, applying to university, or starting a business by building your financial foundation.
- Resilience to change: As you settle into a new country, unexpected costs are likely to arise. It’s easier to navigate changes in employment status and other unforeseen circumstances when you have a strong financial base.
Types of Financial Institutions in Canada
In Canada, there are three main types of banking institutions.
Traditional banks
Traditional banks are also called chartered banks or commercial banks. The most popular ones are often referred to as the “Big Five”:
- Bank of Montreal (BMO)
- Scotiabank
- Canadian Imperial Bank of Commerce (CIBC)
- Royal Bank of Canada (RBC)
- Toronto-Dominion Bank (TD)
These traditional banks are public corporations who are authorized by the Canadian federal government.
Credit unions and cooperatives
While offering similar services as traditional banks, credit unions and cooperatives are much smaller institutions. These networks typically focus on community and member ownership.
Unlike traditional banks, credit unions and cooperatives are not-for-profit. This means that they aim to maximize profit for their members, usually by reinvesting profits into the business or returning them to their customers.
Digital-first banking alternatives
Digital banks provide a way to manage your money online and eliminate the need to go to a physical bank or office. They function through a digital platform that can be accessed through a web page or app.
A few popular digital-first banking alternatives are EQ Bank, Simplii Financial, and Tangerine. Of course, if you’re looking to use a digital service to send money to your home country, Remitly is a great option.
Opening a Canadian Bank Account
The process for opening a bank account can vary, but in general it will follow the same steps:
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- Choose a bank. Once you decide what type of banking institution you’d like to use, consider the different options. Pay attention to the fees, features, and promotional offers available to you.
- Gather your required documents. The documents needed to open an account will be listed on your bank’s website. Keep in mind that personal accounts and business accounts will have different requirements.
- Complete your application. This can often be done easily online or by visiting a branch. Other community institutions, like the public library, might have information sessions or staff members who can help you apply to open a bank account.
- Know your rights. When you open a bank account, you’re entitled to know all of the necessary information regarding fees, interest rates, and other charges. You should receive a paper or electronic copy of the banking agreement upon applying to open an account.
Required documents for newcomers
Everyone who is opening a bank account in Canada must be able to show the required documentation. Newcomers will usually need to provide two documents to prove your address and date of birth. Both documents should also display your full legal name. These documents must come from the following list:
- Canadian government-issued identification
- Government notices of tax assessments
- Statements of benefits from the Canadian government
- Recent Canadian public utility bills
- Recent bank account or credit card statements
- Foreign passports
Special banking packages for immigrants
In general, Canada is a country that is very open to immigrants and newcomers. This is reflected in its banking system. As long as you show the proper documentation, you may be able to open a bank account even if you are not a citizen or full-time resident of Canada.
As you compare different banking options, be sure to look into any introductory offers. Many banks have special benefits if it’s your first time opening an account with them. Common features to look for are:
- No monthly fees
- Cash bonuses
- Specialized newcomer accounts
- Savings on foreign transaction fees
Understanding Banking Fees and How to Minimize Them
Most bank accounts will have some related fees, but there are ways to minimize them or avoid them altogether.
Overview of common banking fees
- Monthly maintenance fees: This is a flat rate each month for basic checking or savings accounts. It remains the same regardless of how you are using your bank account. These fees are more common with traditional banks and credit unions than digital banks.
- Overdraft fees: Banks will typically charge a fee if a payment goes through without sufficient funds in your account to cover it. These fees vary but can be quite expensive.
- ATM fees: It is common for banks to charge a small fee to withdraw cash. This fee may be higher if the ATM is managed by a different bank.
- Wire transfer fees: Fees for sending or receiving a wire transfer vary. If you plan to regularly make wire transfers, consider looking for an account with lower wire transfer fees or alternative ways to send money.
- Foreign transaction fees: These are fees for transactions that are made in a foreign currency or processed through a foreign bank.
- Insufficient funds fees: Unlike an overdraft, these fees occur if your bank stops a payment from leaving your account because of insufficient funds.
Tips to reduce or avoid fees
So long as you know the rules, you should be able to avoid most banking fees. Here are a few tips to bear in mind:
- Maintain a minimum balance
- Use your bank’s ATMs
- Consider alternative payment methods
- Sign up for direct deposit at work
- Pick a checking or savings account that is free to join and has no monthly fees
Comparing fees across banks
In Canada, it is easy for customers to find out about the fees associated with different accounts on banks’ websites. You can then compare different account types and banking institutions.
Third-party services can offer helpful comparison tools. The Canadian Government also offers an Account Comparison Tool that you can use to find an account that fits your needs.
The Importance of Credit in Canada
Credit is a contractual agreement that lets you access goods or services now and pay for them later. Credit is usually made possible by banks, who work as a middleman to pay for the goods and services. Then, the customer pays back the bank at a later date.
A credit history is your official personal history of paying back money that you owe. A good credit history means that you’ve routinely paid back the full amount of money you’ve owed in the agreed-upon time.
In Canada, your credit history is very important. It affects your ability to get a credit card, apply for a mortgage, or take out a loan. It might also affect your ability to rent a property or get a job.
How credit works in Canada
Your credit history is summarized by a credit score. This indicates to others how responsible you are with your money.
In general, you gain points when you are responsibly managing your credit. If you are having trouble managing your credit or paying back loans, you’ll lose points.
Canadian credit scores range from 300-900, and can change over time. Any score above 760 is considered strong.
Building and maintaining a good credit score
If you’ve never borrowed money in Canada through an official financial institution, you won’t have a credit history or credit score. Once you borrow money, your credit history begins and you’ll earn a credit score. If you’d like to know your credit score, you can request it online.
Having a credit history can help create a paper trail that indicates your intentions to integrate into Canadian society, which can be helpful in immigration processes.
Here’s how to start building and maintaining a good credit score:
- Always make your payments on time.
- If possible, pay off any credit in full. If not, make the minimum payment.
- Contact your lender if you think you might have trouble making a payment.
- Don’t skip payments, even if there is a dispute.
- Limit new credit applications.
- Try to use 30% or less of your available credit.
The role of credit in financial decisions
Having a good credit score shows other people that you’re a responsible borrower. This lowers the risk of the lender, whether it’s a bank, a credit company, or the government, making them more likely to lend you money, usually at a lower rate.
How to Make Financial Transactions in Canada
Making money transfers and payments
If you need to send money to a person or a business, you can consider the following:
- Interac e-Transfers: Transfers facilitated by Interac, an online payment system, are almost instant. All you’ll need is the recipient’s phone number or email address. There’s usually a limit to the amount of money you can transfer by Interac e-Transfer, so check with your bank.
- Wire transfers: You’ll need some detailed information to send a wire transfer internationally or domestically, like the recipient’s name, address, account number, routing number, SWIFT or BIC code, and sometimes more. Some banks require you to visit in person to complete this type of transfer.
- Electronic funds transfers (EFTs): Also known as direct deposits, EFTs are used to send money from one bank account to another. They are quick, easy, and secure, and a practical option for recurring payments like paying rent.
- Money transfer apps: You can use a third-party app to send money electronically. Sometimes, both the sender and recipient need to have an account to complete a transaction.
Safety and security of transactions
When it comes to banking, the most important thing is to protect yourself and make sure that your transactions are secure. Always use trusted platforms with strong security measures. As banking becomes more digital and customer-controlled, be careful about how you’re accessing your account. For example, it’s a good idea to avoid using public WiFi when online banking.
When you’re sending money, make sure to verify your recipient’s details. If you receive a request for money that is unfamiliar to you, always proceed with caution and be skeptical. You can contact your bank if you’re not sure about a money request.
Finally, be careful with your personal information and banking details and don’t respond to notifications, messages, and emails that request your banking information. If in doubt, you can contact the company or institution that you’re dealing with directly.
FAQs
If I can pay for my day-to-day life in cash, why should I use a credit card?
Even if you can pay for everything with cash, a credit card still offers certain benefits. The biggest one is the ability to build a credit history, showing that you’re a responsible borrower. Credit cards can also offer some fringe benefits like rewards and discounts.
Is it mandatory to have a Canadian bank account?
No. There is no legal requirement to have a Canadian bank account as a citizen, resident, or non-resident. However, having a Canadian bank account can make everyday transactions easier and more convenient.
At what age should I start a bank account for my child?
There is no minimum age requirement to open a bank account in Canada, but if your child is under the age of 13 (or 14 in Quebec), a parent or guardian will have to accompany them to open a new account. A simple savings account can help teach your child the basics of financial literacy!