Banking and Consumer Credit for Newcomers

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As a new arrival to Quebec, you may have questions about the banking system and obtaining credit. You’ll no doubt want to have a safe place to keep your earning and savings. Perhaps you would like to buy things on credit, or finance projects like home improvements. This article looks at the different types of bank accounts, the steps to open one, and the most common types of consumer credit.

Bank Accounts

It’s hard to manage without having a bank account today. Many companies insist on paying employees by direct deposit. This means your salary is transferred directly to your bank account each time you’re paid. It is much more convenient – and safer-  to make large payments, such as your rent, by cheque rather than by cash. And you can make things simpler for yourself by paying bills, such as telephone and hydro, by transfers or automatic withdrawals from your bank account.

Another important reason to have a bank account is security. In Canada, bank balances of $100,000 or less are insured by the Canada Deposit Insurance Corporation (CDIC), a government agency. This means that if the bank has financial troubles (rare in Canada) you will not lose your money. All major banks and credit unions participate in this insurance plan. For more information, visit the website of the CDIC.

Different types of accounts

There are two main types of bank accounts in Canada:

  • Chequing accounts : these allow you to write cheques on your account, for example, to pay your rent each month. They do not usually earn any interest.
  • Savings accounts : these do not allow you to write cheques. They typically earn a small amount of interest.

Opening a bank account

To open a bank account in Canada, you will generally need to show two identity documents, such as:

  • Your Permanent Resident Card
  • Your Social Insurance Number (SIN) Card
  • A driver’s licence issued in Canada
  • A valid passport

If you are opening a bank account that will earn some interest, you must provide your Social Insurance Number, because the bank must report any interest you receive to the Canada Revenue Agency.

Important: you do not need to have a particular immigration status to open a bank account in Canada, but you will need at least one identitity document issued in Canada (two, if you do not have a valid foreign passport). The complete list of acceptable identity documents can be found here.

Saving money on bank fees

Banks usually charge a monthly fee for your account. However, this may be waived if you maintain a certain minimum balance. There are also typically fees for transactions such as writing cheques, paying with a debit card or transferring funds.

Banks offer a wide variety of packages, for example, accounts that allow you a certain number of transactions — or even unlimited transactions — for a flat monthly fee. Some offer special packages for new arrivals to Canada. You can shop around and compare packages to save money.

Debit Cards

Your bank account will come with a debit card. This allows you to withdraw money at automatic bank machines and pay for purchases in stores, with the money taken directly from your bank account. As mentioned above, there may be a fee for each transaction, or your account package may include a certain number (or even an unlimited number) of transactions per month.

Consumer Credit

Credit Cards

A credit card allows you to “buy now and pay later”. In addition, some transactions (for example, online purchases, car rentals and hotel bookings) may be difficult or impossible to do without a credit card. And, just as with a bank account, you can pay bills, such as telephone and hydro, by transfers or automatic withdrawals from your credit card.

A credit card comes with a certain credit limit (for example, $5000) which you can’t exceed. They carry a high rate of interest. Major credit cards typically charge about 20% interest per year. Department store credit cards usually charge more, often 25% to 30%. (Legally, the maximum amount of interest that can be charged in Canada is 60% per year.) There may also be an annual fee for the credit card. However,  some bank account packages include a credit card with no annual fee.

You must make a certain minimum payment every month. For credit cards in Quebec, this is 5% of the balance you owe. So, for example, if you owe $1000 on your credit card today, you will have to pay at least $50 in the next month.

On the positive side, if you pay your entire balance every month, you will never have to pay any interest. However, if you don’t pay your entire balance each month, interest charges can really add up! Your credit score can also be affected, which can make it more difficult for you to access credit. For more information on credit scores and reports see our article Credit Reports.

Important: If you only make the minimum payment each month, you will end up paying a lot of interest! For example, if you owe $1000 on your credit card, the interest rate is 19.9%, and you make only the minimum payment each month, it will take you six years to pay off the $1000, and you will have paid a total of $442 in interest!

Lines of credit

If you would like to be able to carry a large balance for an extended period of time, a line of credit may be a better option than a credit card. A line of credit typically carries a lower interest rate than a credit card. However, it may be more difficult to qualify for a line of credit. For example, you may have to show a higher credit score to qualify for a line of credit than you would have to for a credit card.

Thinking of buying a home?

If you wish to purchase a house or a condominium, you may need to borrow a substantial amount of money. That level of borrowing usually requires a hypothec (mortgage). For more information on this, please see our article Hypothecs.

For more information on consumer credit, see the websites of the Government of Canada and the Autorité des marches financiers (financial market authority)