Banking in Canada has its roots in the early 19th century. The Bank of Montreal was founded in 1817, and over time, the banking system has evolved to meet the needs of the country’s growing population. Six large banks dominate the system with over 90% market share. These banks are known for their high service levels, technology investments, and stability (they avoided significant issues during the 2007-2008 financial crisis).
Personal finance education is essential for Canadians to achieve life goals such as buying a home, retiring, starting a family, or pursuing higher education. There is a strong link between finances and mental health in Canada. Our goal is to provide you with valuable information and resources so you can live a happier, healthier life. Understanding how Canadian banks work is a great starting point for your future security and stability.
Overview of the Canadian banking system
Types of financial institutions in Canada
- Big Six banks: The “Big Six banks” collectively hold nearly $1.73 trillion in assets. These banks include the Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC), and National Bank of Canada (NBC) (WOWA Leads Inc., 2022). Each bank offers various financial products and services, including chequing and savings accounts, mortgages, loans, credit cards, and investment products.
- Credit unions: Credit unions are member-owned financial cooperatives that provide banking services to their members. They are regulated provincially and often serve specific geographical regions, offering specialized services for their market.
- Caisses Populaires: Like credit unions, caisses populaires are member-owned financial cooperatives primarily operating in Quebec. They provide banking services to their member and are provincially regulated.
- Online-only banks: Also known as digital banks or “neobanks,” these financial institutions operate online, offering banking services without physical branches. They often provide competitive interest rates and lower fees compared to traditional banks.
- Trust and loan companies: These provincially-regulated financial institutions offer services such as accepting deposits, managing trusts, and providing loans (International Trade Administration, U.S. Department of Commerce, (n.d.).
Comparison of financial institutions in Canada
|Type of institution
|Big Six banks
|Comprehensive range of financial products and services
|Banking services, often with a regional or community focus
|Banking service, primarily in Quebec
|Banking services, often with competitive rates and lower fees
|Varies (federal or provincial)
|Trust and loan companies
|Deposit-taking, trust management, and loans
Key Banking Services and Features
Savings and chequing accounts
Loans and lines of credit
Business banking services
How to Choose the Right Bank and Account
Factors to consider
Tips for comparing banks and accounts
|User comparison tools
|Utilize online comparison tools to rate account features, fees, and interest rates across different banks
|Read reviews and testimonials
|Look for reviews and testimonials from other customers to gauge each bank’s reputation and customer service quality
|Assess your needs
|Determine your specific banking needs, such as accounts, services, and features, and compare banks based on these criteria.
Opening a bank account in Canada
Online and Mobile Banking in Canada
- 24/7 access to your accounts, allowing you to check balances, view transaction history, and manage your finances.
- The ability to pay bills, transfer funds, and deposit cheques using your mobile device.
- Access to budgeting tools and financial planning resources to help you manage your money more effectively.
- Enhanced security features, including multi-factor authentication and biometric login options.
Security concerns and protecting yourself
Some tips for safeguarding your information include the following:
- Use strong, unique passwords and change them frequently.
- Enable multi-factor authentication for added security.
- Avoid using public Wi-Fi for banking.
- Keep your devices updated with the latest security patches and apps.
- Be cautious of phishing attacks, and do not click on suspicious links in emails or text messages.
Popular mobile banking apps and features
- RBC Mobile: Offers a user-friendly interface, allowing you to deposit cheques, views account, pay bills, and transfer money.
- Tangerine Mobile Banking: Known for its security features, such as voice banking and Touch and Face ID, as well as a secure live chat feature for customer support.
- BMO Mobile Banking App: Provides access to various banking services, including cheque deposits, bill payments, and credit card activation.
- TD Canada: Offers a comprehensive suite of banking services, including account management, bill payments, investment tracking, and stock trading.
Saving and Investing with Canadian banks
- High interest
RRSPs and RDSPs are designed to help you save for retirement, with contributions resulting in immediate income tax deductions and tax-deferred growth (Scotiabank, 2023). RDSPs also include annual government contributions to compound your account’s savings. RESPs are tax-advantaged and meant to help you save for your child’s or children’s post-secondary education.
TFSAs and FHSAs allow you to shelter taxes on investment returns and make tax-free withdrawals, though FHSAs are only available to first-time homebuyers and capped at $40,000. Choosing between each type of account, or a combination of the accounts, depends on your circumstances, income, financial goals, and tax situation. You should always sit with a professional banker or advisor to determine your options.
- Guaranteed Investment Certificates (GICs): Low-risk investments guaranteeing your principal and a predetermined interest rate over a set period.
- Mutual funds: Pooled investments that allow you to invest in a diversified portfolio of stocks, bonds, and other assets, tailored to your risk appetite.
- Exchange-Traded Funds (ETFs): Like mutual funds but traded on stock exchanges like individual stocks.
Strategies for maximizing your savings and investments
|Pay off high-interest debt
|Reducing this debt can help you save more and improve your overall financial health
|Automate your savings
|Set up automatic transfers from your bank account to your savings or investment accounts to ensure consistent savings
|Diversify your investments
|Spread your investments across different asset classes to reduce risk and potentially increase returns
|Take advantage of registered accounts
|Utilize RRSPs and TFSAs to enjoy tax advantages and boost your long-term savings and investments
|Monitor and adjust your investment portfolio
|Regularly review your investments and make adjustments as needed to stay aligned with your financial goals and risk tolerance
Managing Debt and Credit in Canada
Understanding your credit report and score
It is important to closely monitor your credit report to ensure all information remains accurate. Your credit can be the difference between being approved for a mortgage, a new car loan, or even obtaining a security clearance for government work.
Tips for improving your credit score
To improve your credit score, you should consider the following tips:
- Pay your bills on time: Your payment history is the most significant factor in your credit score. Always make your payments on time to maintain a positive payment history.
- Keep your balances low: Use less than 35% of your available credit to maintain a healthy credit utilization ratio.
- Understand your risk tolerance: Assess your risk profile to ensure your investments align with your comfort level and financial objectives (Thaler, 2015).
- Increase the length of your credit history: The longer your credit history, the better your score will be. Keep old accounts open and in good standing to demonstrate a long history of responsible credit use.
- Limit credit inquiries: Too many “hard” inquiries on your credit report can negatively impact your score. Only apply for new credit when necessary.
Strategies for managing debt
Make a list of debts
This will help you prioritize your debt by the amount owed or interest rate
Create a budget
A budget will help you manage your money and allocate money towards debt repayment (update it regularly)
Choose a debt repayment strategy
Decide on whether you want to focus on the lowest balances first, or high-interest debt
Consider debt consolidation
Consider combining any high-interest debt into a single loan with a lower interest rate to save money and simplify the repayment process
Seek professional help
Consider seeking help from a credit counsellor who can help you make a plan to manage your debt and improve your financial situation
Frequently Asked Questions About Canadian Banking
What are the main types of financial institutions in Canada?
The main types of financial institutions in Canada include chartered banks, credit unions, Caisses Populaires, online-only banks, and trust and loan companies.
How do I choose the right bank account in Canada?
To choose the correct bank account, consider fees, interest rates, accessibility and convenience, customer service and support, and online and mobile features.
What are some security best practices for online banking?
Some security best practices for online banking include using strong, unique passwords, enabling multi-factor authentication, avoiding public Wi-Fi for banking transactions, keeping your devices updated, and being cautious of phishing attacks.
What are some standard investment options offered by Canadian banks?
Common investment options offered by Canadian banks include Guaranteed Investment Certificates (GICs), mutual funds, and Exchange-Traded Funds (ETFs).
What are some strategies for managing credit and debt in Canada?
Strategies for managing credit and debt in Canada include paying your bills on time, keeping a low balance on your credit cards, increasing the length of your credit history, limiting credit inquiries, and considering debt consolidation.