Basic banking and financial terms you should know
When you open an account at a bank or credit union, they will give you a plastic card that you can use to access your account electronically. This is called a debit card. Together with your Personal Identification Number (PIN), you can use your debit card to check your account at an ABM (see below) or pay for purchases at stores offering Interac Direct Payment Service. With this card, you do not have to carry cash when you shop. You also have access to your account even if you are far from your bank or credit union branch. You just need to go to the nearest ABM.
Banking for newcomers
When you arrive in Canada, finding a good financial institution to help you manage your money is a priority. Banking products and services may have been different in your home country so you should familiarize yourself with Canadian banking (Read Essential facts newcomers need to know about financial institutions in Manitoba to know more about basic banking).
Here are few basic banking and financial terms you need to know:
Chequing account – This is a secure facility to keep money that you plan to use for day-to-day spending or to pay bills over the short term. With this account, you can deposit and withdraw. It earns very little interest.
Savings Account – This is where you keep your money for short-term goals or your emergency fund. You can deposit and withdraw easily from this account. However, you may have to pay a higher bank fee for withdrawals (depending on the type you choose) compared to a chequing account. Savings accounts also earn a slightly higher interest compared to chequing accounts (but the interest is taxed). There are different types of savings accounts.
ATM/ABM – Automated Banking Machine or Automatic Teller Machine. This is a kiosk that allows you to conduct financial transactions. You can get cash from your account, pay bills, or deposit cash or cheques.
PIN (Personal Identification Number) – It is a code or numeric password you assign to access your account. You should always protect and keep your PIN private.
Deposit – Money put into a financial institution. It can be in the form of cash, cheque or via an electronic transaction.
Withdraw – To get money from your account.
Bank fees/bank charges – These are fees you need to pay for bank services. For savings and or chequing accounts, you may pay for:
- Transaction fees – The amount you pay for transactions (debit, withdrawals, or paying bills). Some banks set a certain number of transactions for a monthly fee. You will be charged more when you go beyond that number.
- Service fees – Some banks could charge you for moving or transferring money between accounts, updating your balance or when you want a copy of your monthly statement or cancelled cheques to be mailed to you. Others do not charge fees for such transactions when you keep a minimum account balance. Some banks set a certain number of times you can do these for free.
For chequing accounts, you may also have to pay for:
- Minimum Balance Fees – The bank may charge a fee if your account falls below the minimum balance. You don’t pay fees as long as you stay at or above the minimum.
- Fees for NSF cheques – NSF means “no sufficient funds”. This is charged when you issue a cheque but you don’t have enough money in your account to cover the amount stated in the cheque. This is illegal in Canada. This is also called “bouncing a cheque”.
When you are looking for a bank or credit union, it would be wise to compare fees for services that you use the most. Having an idea of the frequency of your transactions will also be valuable. It will help you decide on the type of account to get and prevent you from paying for additional services that you don’t need.
Cheque – A written order for payment for a certain amount of money. You can ask for a cheque book when you open a chequing account.
Voided check – This is a cheque you don’t intend to use for payment. This is made by getting a check and writing the word “void” on it. It is used to get information needed for electronic payments. Your employer may ask for one if they can directly deposit your salary to your account. You can also use it if you want to set up automatic electronic payments for your rent, insurance, mortgage and others. The word void is written on it so that others cannot use it to get money from your account.
Credit Card – A plastic card that you can use to pay for purchases on credit.
Credit limit – The amount you can borrow using your card. For most newcomers, the starting credit limit is CAD $1,000. As you establish your credit history, this may increase. The lender must give you notice when they change your credit limit.
Credit card balance – The amount of money you owe the credit card issuer.
Grace period – The time given to you to pay off a balance before you can be charged interest. Under Canadian rules, your lender must give you at least 21 days on all new purchases before interest is placed on the full amount you owe.
Credit history – A record of a consumer’s ability to repay debts and how he or she uses money to deal with loans and credits. It shows your borrowing habits. To know more about the importance of building a good credit history, read Understanding your credit history.
Credit score – A three-digit number that indicates how much credit risk you represent. It is based on your credit history. It is a scale from 300 to 900, with 900 being the best score.
Credit union (Caisse populaire) – A type of financial institution that is owned by its members and operates for their benefit. It is usually small and locally oriented.
Online banking – Also called internet banking or e-banking. It allows the user to do financial transactions using the internet. You can monitor your account, transfer funds, or pay bills any time, without having to physically go to the bank/credit union or ABM.
Mortgage – A loan used for buying property. If mortgage is not paid on time, the lender can take possession of the property.
Loan – The act of giving money, property or other material goods to another in exchange for future repayment (usually with interest and other finance charges).
Interest – The amount paid by the borrower to a lender for the use of the money. The amount is usually determined through an interest rate, the percentage used to calculate the interest to be paid.
Sources: The Financial Consumer Agency of Canada (FCAC) Glossary; Get Smarter About Money.ca; Investopedia