13.5: Banking
Suppose you want to save or invest — do you know how or where to do so? You probably know that your bank branch can open a savings account for you, but interest rates on such accounts can be pretty unattractive. Investing in individual stocks or bonds can be risky, and usually requires a level of funds that most students don’t have. In those cases, mutual funds can be quite interesting. A mutual fund is a professionally managed investment program in which shareholders buy into a group of diversified holdings, such as stocks and bonds. Any of the Big Five banks in Canada (RBC, CIBC, BMO, TD Canada Trust, or Scotiabank) offer a range of investment options, including indexed funds, which track with well-known indices such as the Toronto Stock Exchange, a.k.a. the TSX. Minimum investment levels in such funds can actually be within the reach of many students, and the funds accept electronic transfers to make investing more convenient. We’ll leave a more detailed discussion of investment vehicles to your more advanced courses.
You may choose to do your banking with a major bank or with a local credit union. Most people never notice the differences between credit unions and banks. They offer similar products and services, but they’re not the same. Table 13.1 highlight the key similarities and differences between the two.
| Banks | Credit Unions |
|---|---|
| Usually banks are owned by shareholders. | Customers are “members”; deposits are called “shares.” |
| Banks are for-profit organizations and shareholders expect to receive a profit. | Credit Unions are non-profit organizations that strive for service over profitability. |
| Banks offer a wide range of competitive and advanced banking products. | Credit Unions may not have all the banking products as major banks |
| Inter-branch banking makes banking convenient. | Inter-branch banking is limited. |
| Banks must make sound financial decisions, collect revenue, pay salaries, and compete with other institutions. | Credit unions must make sound financial decisions, collect revenue, pay salaries, and compete with other institutions. |
| Funds are secure. | Funds are secure. |
Choose an Institution that is Right for You
As a college or university student, you might be out on your own for the first time. Part of handling your own finances will be choosing a banking institution or institutions that best suit your needs. Banks are eager to gain new clientele and establish brand loyalty early on. It should come as no surprise, then, that just about every major banking institution in Canada offers student banking plans.
Identify
You may want to read How to Choose A Bank that’s Right for You.
When choosing a financial institution, consider the geographical location, banking hours, and ATM availability.
How many transactions do you make in a typical month? This can help you determine how many monthly transactions you need to have included with your banking package.
Shop Around
Once you’ve identified the services you need, find out how much it will cost to get those services. Start by looking at no-fee accounts to see if they meet your needs.
Compare whether it would be less expensive for you to get an account package for a fixed fee that includes an unlimited or specific number of transactions each month, or to pay for each individual transaction.
Paying extra fees for services you use regularly can be expensive. If there are certain products or services that you use often, such as e-transfers, look for a chequing account that includes those products or services as part of the monthly fee.
Use the Financial Consumer Agency of Canada’s (FCAC’s) interactive account comparison tool to compare the chequing accounts that are available to suit the banking habits and needs you have identified.
If you are a student, youth, senior or newcomer to Canada, you may be able to choose from banking packages especially designed for you. These packages usually cost less, offer added benefits or may have no monthly fees for a limited time.
Choose
After gathering all of this important information, it’s time to make your final selection. If you are still uncertain, make an appointment with a banking specialist to have any additional questions answered.
Be comfortable and confident with your choice of bank and account!
Avoid the Predators
Payday loans are offered by private lenders and cheque cashing outlets. People use them to cash cheques or borrow money in advance of their paychecks.
But payday loans are very expensive ways to borrow money. Even though such money lending companies have been recently regulated by the government, there are many high service fees and interest charges. For instance:
- NSF fees are as high as $60 for each missed payment
- The average fee for a two-week $300 loan is over $60. If you work that out to a yearly interest rate that is 520%!
Now you are ready to start planning for your financial future.
