Your life in the Saint John Region requires you to have a good understanding of banking and finance. Your day-to-day financial life could include any or all of spending, saving, investing, and borrowing. To manage your finances, you may need to deal with banks, investment companies, the government of Canada, and other organizations.
Types of bank accounts
As a newcomer, one of the first things you’ll want to do when you settle is open a bank account. There are a few different types of bank account, and many people have more than one.
Chequing
These accounts are for everyday banking such as cashing and depositing cheques, depositing cash, paying by cheque, and paying by debit card (using your bank card). Chequing accounts usually have a monthly fee, so make sure you know what it is before you open the account. If you want, you can buy overdraft protection. That means you can have a negative balance in your account. This protects you from running out of money. Overdraft protection usually has a monthly fee and a high interest rate will be charged on the amount you have overdrawn.
Savings
If you open a savings account, you will earn interest; that is, a small percentage of the money you leave in the account. Interest rates vary from bank to bank. Savings accounts are best used for saving money, not for your day-to-day banking needs. Some savings accounts even charge a user fee every time you use a debit card.
Business accounts
These are special accounts set up under the name of a business. They allow the business owner to receive and write cheques under the company’s name rather than his or her own. They are useful to keep personal funds separate from business funds. Business accounts have features and fees that differ from personal accounts.
Chequing, savings, and business accounts are called by different names at different banks. Make sure you understand what kind of account you have and what they will cost. Be sure you understand which account will be used for debit card purchases.
Debit cards and automated teller machines (ATMs)
All major banks offer their customers debit cards. You will use them to do banking at machines known as ATMs, and to buy things at stores. Each bank has its own ATMs. If you use a machine that does not belong to your bank, you will be charged a fee (often from $1.50 to $3.50).
Your personal identification number (PIN)
All debit cards come with a personal identification number (PIN) that you choose. It’s usually four digits. You’ll need to enter your PIN whenever you use your debit card—like at an ATM, and when you make a purchase at a store. It is extremely important that you keep your PIN private and not tell anyone what it is.
Making deposits
If you make a deposit at an ATM, the bank must confirm, after the fact, that the deposit is accurately entered and is legitimate. As a result, banks maintain the right to limit your withdrawals from ATMs based on deposits that are immediately made at ATMs. This practice, called a “hold,” is important to remember if you intend to pay a bill based on a deposit you have immediately made at an ATM.
Borrowing money
It is common in Canada to borrow money for items that you cannot afford immediately. It is a good idea not to borrow unless you need to do so. Most banks will not lend money if your monthly payments for debt and housing are more than 40% of your income. There are three main ways that banks lend money to people: credit cards, lines of credit, and loans.
Credit card
You can use a credit card to make purchases at most stores and businesses. Every purchase is essentially a short-term loan, and you’ll need to pay your credit card bill monthly to avoid interest charges.
- There is a limit on how much you can spend using your credit card.
- You are expected to pay part or all of what you owe every month.
- If you make regular payments on your credit card, you may keep using it over and over. This is called “revolving credit”.
- Credit cards are generally easier to qualify for than loans, but they charge a higher rate of interest (often 19%).
- Many stores also offer their own special credit cards. These usually come with rewards for using them to buy from that store. Be careful: these cards often have even higher interest rates (often 29%).
Lines of credit
A line of credit is an amount of money the bank makes available to you to use. But every time you use it, you will pay interest.
- Lines of credit usually have higher limits and lower interest rates than credit cards, but they are more difficult to qualify for.
- You are able to write cheques and use your debit card to draw on your line of credit.
- The bank is required to send you a statement or bill every month if you owe money.
Loans
Loans are typically larger amounts of money, intended to pay for more expensive items like cars or home repairs.
- You pay your loan back in instalments—each payment includes principle plus interest.
- Some companies offer payday loans. This means they give you the money you would get on your pay day, only a few days early. These usually have extremely high fees and interest compared to other ways of borrowing, and you should avoid them.
Be sure to maintain good credit
Your “credit rating” is a measure of how likely you are to pay lenders when you owe them money. This is determined by taking certain information about your financial history and making a credit report. Your credit rating is based on this report. Your credit rating is very important because banks use it when deciding if and how much to lend you. Credit reports may also be used by banks when opening certain types of bank accounts, or by utility companies when setting up accounts.
Even if you had credit in your home country, you may not have credit in Canada, so it is a good idea to establish good credit here. Here’s how you can accomplish this:
- Prove you can handle debt well. This means you need to borrow money to show that you can pay it back. Make sure you have at least one revolving credit product such as a credit card or line of credit.
- Keep the balances low on your credit cards and lines of credit. You should have a balance of less than 75% of your limit.
- Pay on time. Paying your utilities and debts late may hurt your credit.
- Do not let people check your credit too often. All companies must ask your permission before they can check your credit report. Every check will affect your rating. If there are several checks in a short period of time, this may be a sign that you may be trying to borrow too much. Limit yourself to only having your credit checked only when necessary.
For more information on credit or to obtain a copy of your credit report, you may contact either Equifax or TransUnion. These companies keep and update your reports and calculate your rating. They are commonly referred to as credit bureaus.
Bankruptcy
If a person is no longer able to make their debt payments, they may choose to declare bankruptcy. When a person goes bankrupt, a trustee is appointed to sell all of his or her assets to pay off any outstanding debts. After a certain period, up to nine months in the first instance, and when all remaining debts are cancelled or cleared, a person may start to build a credit rating again, but this is difficult. A first bankruptcy remains on a person’s credit report for seven years after it has been resolved; a second bankruptcy remains on a person’s record for 14 years. Some banks will not lend to people with more than one bankruptcy. For more information, contact the Office of the Superintendent of Bankruptcy.
Investing
Investing is a way to try to make your savings grow. You must always be very careful, however, and be aware of the financial risks involved. There are many financial products and services that allow you to invest in your money, and some come with more risk than others. For advice on investing, talk to a certified financial planner. Your bank may have certified financial planners who may work with you for free, or they may be able to refer you to certified financial planners.
Savings bonds
Savings bonds are issued by the federal government. You buy bonds for a specific amount of money, and after a specific period of time you get your money back plus interest. This is a safe investment, but the rate of return is low.
Guaranteed income certificates (GICs)
You invest a certain amount of money for a certain length of time. After that time has ended, you get your money plus guaranteed interest.
Mutual funds
A mutual fund is a financial product that pools assets from different shareholders to invest in securities like stocks, bonds, money market instruments, and other assets. You can buy mutual funds from banks or private companies that are licensed to deal with mutual funds. Mutual funds can earn higher interest than savings bonds and GICs, but you are taking a higher risk. It’s a good idea to invest in a wide variety of funds so that, if one fails, you will not lose your entire investment.
Registered retirement savings plan (RRSP or RSP)
An RSP is an investment that’s registered with the Government of Canada. An RSP is intended to be a way to save money for retirement, and can be in the form of savings accounts, GICs or mutual funds. One benefit of an RSP is that it allows you to defer paying tax on the amount you invest.
- Every year you may put a certain amount of money into your RSP (limited by the Canada Revenue Agency)
- When you complete your income tax return, you may subtract the amount of money you put in RSPs from your income. This way, you pay less in tax.
- The money you put into your plan will grow until you are ready to take it out.
- When you take money out of the RSP, then you must pay tax on it.
- RSPs save you money because, when you are working, you pay more tax than when you are retired. When you withdraw money from the RSP after retiring, you will not be making as much money, so in the end, less income goes to taxes.
You may borrow from your RSP to help pay for your first home or to go to university. You do not have to pay tax on this money. For homes, the amount must be repaid to the RSP within 15 years, with a minimum annual payment of 1/15th of the amount withdrawn. For attending university (typically, adults), the amount must be repaid to the RSP within 10 years with a minimum annual repayment of 1/10th of the amount withdrawn.
Registered education savings plan (RESP)
RESPs are similar to RSPs, except rather than funding your retirement, they are used to pay for post-secondary education (university or college after high school). The government gives grants of up to $500 per year, per student, which go directly into RESPs. Students pay the tax when they take out the money to use for their education. This will normally be a very small amount compared to the amount of tax that would be paid by someone working (sometimes no taxes need be paid).
Tax-free savings account (TFSA)
A TFSA is a savings account or mutual fund on which you’ll earn interest that will not be taxed. You can contribute up to $5,500 per year. The money may be withdrawn at any time and for any reason with no tax penalty.
Moving money
If you need to transfer funds outside of Canada, or to different accounts within Canada, there are many ways this can be done. The following are some of the most common ways.
Wire transfers
This means moving money electronically from one bank account to another one located almost anywhere in the world. There are usually fees for wiring money and for converting between currencies—often a percentage of the amount of money being transferred.
Western Union
Western Union is a private company that moves money all over the world. You can use Western Union to transfer money in person or over the telephone, and it allows the other person to get their funds right away.
Email money transfers
This is a way to move money between people at different banks within Canada. You cannot use this to send money to someone at a non-Canadian bank. This type of transfer sends money directly from your account by email, and the person receiving the money must accept the transfer. This is usually faster than a wire transfer, and often free.
Money orders
Money orders may be purchased at the bank or the post office. It is a safe way to send money through the mail. Money orders may be easily cashed by the person receiving them.
International benefits
If you lived or worked in another country, or if you were married to or a common-law partner with someone who did, you may be eligible for a pension or other benefits in Canada. New Brunswick has agreements with several other countries that make this possible. Contact Service Canada to learn more.