Bank accounts play an important role in household financial planning. Find out more about bank accounts, including the types of bank accounts, how to choose and open an account, and how to reduce bank account fees.
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What is a bank account?
A bank account is an account provided and maintained by a financial institution where the transactions between it and the customer are recorded.
There are two main types of bank accounts:
- Saving account – Allows you to set money aside for emergencies and save for a large purchase while keeping your money readily accessible.
- Chequing account – A place for money that you plan to use for day-to-day spending or to pay bills.
Most Canadians use both these accounts for everyday financial transactions including getting paid, paying bills, and putting aside money. Both accounts are safe places to put money that you plan to spend soon.
Money in these accounts is protected against loss, up to set limits, through the Canada Deposit Insurance Corporation (CDIC). Learn more about how your money is protected at financial institutions.
Who can open a bank account?
Almost anyone can open a bank account. You don’t need to have a job or a certain amount of money. If you are under age 18, you can open an account with the help of a parent or guardian. You may have trouble opening an account if you don’t have two pieces of acceptable identification, or you have a criminal record.
You can also open an account with someone else. This is called a joint account. It allows two people to make withdrawals, deposits, payments and other transactions from the same account. A joint account may be useful for managing household expenses with your spouse, or with another family member.
Many financial institutions provide similar banking services for chequing and savings accounts but are run differently:
- Banks and trust companies – Make money for the people who own their shares.
- Credit unions and caisses populaires – Owned and run by the members who bank there. They may charge a refundable membership fee to join.
- Investment firms – May offer an account similar to a bank account.
How do you open a bank account?
There are five steps to you can take on the path to opening a bank account.
1. Decide what type of account you need
If you’re thinking of opening a new account, ask yourself: Do you need an account to set money aside for the future, or to make transactions like paying bills or deposit your paycheque?
- Choose a savings account – For a place to save money over a short period of time, but still keep it readily accessible.
- Choose a chequing account – For a place to keep money that you plan to use for day-to-day spending or to pay bills over the short term. You’ll earn less interest than with a savings account.
2. Look for an account with the services you’ll use most
The amount of fees you’ll be charged for your account, will depend on the type of services and features that come with it. Consider whether your transactions will be made by:
- Branch – to make deposits and withdrawals using a teller or ATM.
- Debit card – to buy something or get cash at a store.
- Cheques – for paying bills.
- Direct debit – for paying bills automatically from your account each month.
- Direct deposit – to have your pay put into your account.
- Internet or telephone banking – for a range of transactions.
3. Shop around to compare interest rates
Interest rates are usually not very high on chequing or savings accounts. But it may be worth comparing the interest rates offered by various institutions. Often, those without physical locations may offer a higher rate.
- Use this Saving Account Selector Tool to compare savings accounts across Canada.
- Use the Banking Package Selector Tool for chequing accounts.
4. Choose a financial institution and location
Some banks offer only online service which may appeal to you. But if plan on using an ATM, it can be handy to choose a financial institution with branches or bank machines near where you live or work. That’s because ATMs out of your network may charge up to $3 per withdrawal.
5. Open your account
You’ll have to give personal information when you open your account. This can include providing your address, date of birth, social insurance number, job title and phone numbers on the account application. You’ll also need to show two pieces of acceptable identification. One of them must be from the government. Once your account is open you can make your first deposit.
Protect yourself from fraud
Make sure to protect your account numbers, debit card, personal identification number (PIN) and online banking information. And watch out for emails claiming to be from your bank, asking for your bank information or other personal details. This is a scam called phishing.
How can you lower banking fees?
The more services offered for savings and chequing accounts, the higher the fees. Here are five tips to reduce fees:
1. Ask for special fees based on your age
Some banks may offer low-fee or no-fee services or rates for seniors and post-secondary students. Others may have special accounts for children and teens who are just starting to save.
2. Watch how many transactions you make, and where
Some accounts let you make as many transactions as you like for a flat monthly fee, but it’s usually higher. Other accounts place a limit on how many transactions you can make for the fee you pay. You’ll pay more if you go over your limit.
Often, you pay less if you use a bank machine or internet banking instead of a bank teller. But find out if you’ll pay extra fees to pay your bills online.
3. Only get the records you need
Banking transactions now default to digital, online transactions more so than other methods like in-branch transactions or communication by letter.
If you prefer to write physical cheques and get paper statements in the mail, it’s likely you’ll pay fees for these services. You may also pay fees for getting your account balance and for updating your bank book. Switch to paperless banking if you can, so you’ll pay less in fees and charges.
4. Keep an eye on your account balance
Check the fine print to learn what other fees may be charged if your account balance goes over or under a certain amount. Some accounts offer lower fees if you always keep a minimum balance in your account.
If your balance is not enough to cover a payment, you will pay an NSF (not sufficient funds) fee. You can also get overdraft protection for your account. This will allow payments to proceed even if there are not sufficient funds — up to a certain limit, for which you’ll pay a fee.
5. Shop around and compare fees
Financial institutions compete for your business. It’s worth shopping around to compare fees and packages. Compare savings accounts with the Saving Account Selector Tool. Compare chequing accounts with the Banking Package Selector Tool.
Summary
A bank account is provided and maintained by a financial institution where the transactions between it and the customer are recorded. Things to know:
- There are two main types of bank accounts: chequing and saving.
- Decide which type of bank account you need.
- Always shop around and compare fees and interest rates before you open an account.
- Always protect your personal and banking information.
