Proper money management is a major aspect of personal finance and doing so starts with having the right tools. Bank accounts are one of the most essential in any personal finance toolkit and a lack of understanding can lead to poor financial decisions or missed opportunities. This is why we’ve created this guide to help with understanding them.
Before diving in, remember that this is general information intended to offer ideas and inspiration. It’s always wise to consult with a financial professional for personalized advice.
What is a Bank Account?
A bank account is an account usually opened by you or a close relative to whom you have given prior authorization to do so. Once opened, this account is maintained by the bank and allows you to deposit money to and withdraw money from it.
To help you organize and understand what happens in your bank accounts, banks provide helpful features within your account that you can access. These features allow you to keep track of your deposits, withdrawals, and other activities that take place in your account.
Depending on the type of bank you’ve opened an account with or your specific requests or exclusions when signing up for the account, you may or may not receive a debit card.
Debit Cards
A debit card is linked to your account and is what you will use to make purchases at a business’s payment terminal. It allows money to be transferred from your account to the merchant’s bank account allowing you to pay for your product or service instantly.
What are the different types of banks?
In Canada, there are various types of banks which include:
- Chartered banks – The most prominent and widely recognized banks in Canada. Some of these banks include the “Big Six” which are:
- TD – Toronto Dominion Bank
- RBC – Royal Bank of Canada
- Scotiabank – Bank of Nova Scotia
- CIBC – Canadian Imperial Bank of Commerce
- BMO – Bank of Montreal
- National Bank of Canada.
- Credit Unions – These are member-owned financial cooperatives that are not-for-profit organizations, Meaning any profits are returned to members in the form of lower fees, higher savings rates, or dividends. Some examples include:
- Vancity
- Cervus Credit Union
- Connect First Credit Union
- Caisses Populaires – These are similar to Credit Unions, except they are commonly found in French speaking regions.
- Desjardins Group
- Online-only banks – Online-only banks operate exclusively online without physical branch locations. Some examples include:
- Tangerine
- EQ Bank
Other types of financial institutions
Some financial institutions offer various financial services such as investment products and digital accounts that offer similar money management benefits to their customers. Some examples include:
- Wealthsimple
Types of bank accounts
Checking Account: This is the most common type of account for everyday transactions. It usually comes with a debit card and check-writing capabilities and can be used to pay bills, make purchases, and withdraw cash.
Savings Account: A savings account is designed to earn interest on the money kept in the account.
Joint Account: A joint account is shared between two or more people, often used by couples or family members. It allows everyone named on the account to deposit and withdraw money.
Business Account: A business account is necessary for managing the finances of a company separately from personal finances.
What are the benefits of a bank account?
- Additional security storage: Bank accounts offer a level of security that is not available for money kept in cash.
- Ease of Access: Because most banks offer online access to your accounts, ATMs, or physical branches, you don’t need to travel far, or travel at all to get your money
- Convenience: Pay bills online, receive direct deposits, and transfer money with ease, receiving your income.
- Interest: Savings accounts often earn interest.
- Record Keeping: Your bank provides detailed statements, helping you track your spending and manage your budget.
- Deposit insurance: Protects your eligible deposits if your CDIC member financial institution fails.
Choosing the right bank account
Ultimately, the right bank account for you is based on your unique preferences. Ensure that you do your own research to understand what options are available to you. Below are some questions you can ask to learn more about the institution, be sure to ask any that come to mind for you as well.
- What types of accounts do you offer?
- Are there any fees associated with banking with you? If yes. What are the fees associated with the account?
- Is there a minimum balance requirement?
- What interest rates do you offer?
- How often is interest compounded?
- What security features does the account offer?
- What happens to my money if you stop operating?
Bank accounts are an effective addition to any money management toolkit. They offer additional security when storing your money, easy access to daily transactions, and opportunities to grow your savings, simplified record keeping, and more. Understanding the different types of accounts and how they work can empower you to make better financial decisions and set you on the path to achieving your financial goals.
Remember, in all that you do we wish you the best, however, we are not licensed financial advisors, accountants, or lawyers. All shared content is for informational or entertainment purposes only and therefore does not constitute financial advice. Learn more in our disclaimer policy.