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How Does Banking Work in Canada?

29 Dec 2021, 21:51 GMT+10

Canadians have access to different types of banks and different types of financial products. Choosing the right financial institution depends on your financial goals. Different banks offer different financial services, account types, interest rates, and account fees. Take a look at some important considerations to keep in mind when understanding how banking works in Canada.

Traditional Banks vs. Online Banks

Canadians can open bank accounts with traditional banks and digital banks. The biggest advantage of a digital bank over a brick-and-mortar bank is that they charge lower account fees and offer higher interest rates on savings accounts or guaranteed investment certificates (GICs). Online banks don't have physical branches or in-person banking services, which means lower operating costs that result in lower fees and more attractive interest rates. One disadvantage of online banks is that they offer limited financial services compared to traditional banks.

Digital banking offers Canadians convenience, practicality, and on-demand access to their funds. When deciding between a traditional financial institution and a digital bank, it's a good idea to read reviews from a reputable site. The personal finance website Wealth Rocket offers financial advice on everything from growing your investment portfolio, choosing the best robo-advisor, finding the right account type, and personal lending services. They also offer advice on choosing the best online bank in Canada to fit your financial needs.

When choosing the best online bank, it's important to identify your financial goals, both short-term and long-term goals. Always read reviews about each online bank you are considering to get a sense of customer service quality and availability. Consider what your banking needs are and whether a traditional or digital bank is the better fit. Lack of a physical location means an online bank can offer fee-free accounts and higher interest rates; however, they don't offer more complex banking services such as wire transfers.

Several perks come with online banks and virtual banking. Mobile banking services offer the convenience to manage your finances when and where you want. Online banks feature higher interest rates on savings accounts and low or no banking fees. Virtual banking makes banking services accessible whenever you need them. Online banks have strict security measures just like traditional banks and are protected by the Canada Deposit Insurance Corporation (CDIC).

Types of Bank Accounts

It's important to choose the right account type for your banking needs. The most common types of accounts Canadians hold are checking accounts for everyday spending and savings accounts for short-term savings and earning interest. There are different types of savings accounts to select. Certificates of deposit hold your funds for a set number of years and earn a fixed interest rate. Money-market accounts have more withdrawal options than traditional savings accounts and even feature check-writing options and debit cards for ATM withdrawals.

How To Choose the Right Bank

Choosing the right account type and bank depends on your financial goals. Look for a bank that charges low or no service fees. Many accounts come with a minimum balance requirement, ATM fees, withdrawal limits, and monthly maintenance fees. The good news is that most deposit accounts have ways of waiving these fees if you meet certain requirements.

Keep in mind the accessibility of a bank, and don't rule out looking at credit unions. It's important to choose a bank that fits your lifestyle, whether that means mobile banking services or branch banking. Take a look at a bank's online banking features and read the fine print for any details about fees or exclusions. Always take the time to read customer reviews so you know what to expect before signing up and committing to an account.

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