Shopping for a financial institution

Your financial institution is a for-profit business that handles money and sells financial products.

If you are in the market for a place to keep your money and are looking for somewhere to develop a financial relationship, I recommend that you examine several types of financial institutions and explore what they have to offer you before making that all-important decision as to who will get your business.

In Canada there are credit unions, caisses populaires, trust companies and banks to choose from.

Too often, today’s consumers don’t stop to think just how much they are in control. The financial industry is a consumer driven market – they all want your business. So become an informed consumer - understand the difference between your needs and wants - learn who will serve you the best – today and in the future.

Why have a bank account?

The main reason to have an account I believe is safety. A financial institution is a safe place to keep your money. You can earn some interest when you are not using your money and it is a convenient way to make purchases large or small using the services provided by the financial industry.

Once you have an account established it is much easier to manage your money. I always recommend that you have a debt free account and a regular bank account for your daily transactions.

Three basic types of accounts:

  1. A savings account - this account is usually used for your short-term needs and the financial institution will pay you interest on your account, depending on the account type chosen and the going rate of interest. Any fee structure also varies by account. Your money can be withdrawn at any time from this account.
  2. A chequing account – this account is usually used for paying bills or personal expenses. If you frequently take money out it makes sense to have a chequing account. The fees are usually lower than the service charges related to a savings account. Some chequing accounts pay interest others do not – speak with your bank to see what their rates are before you sign up.
  3. The combination account – if you want to save your money and manage your day-to-day expenses in one account consider this one. You may take out your money at any time at a bank machine, write a cheque or pay by direct payment. Interest is usually paid on these accounts if the balance remains above a set amount – say $1,000.00 – then you may not have to pay any service charges to use the account.

Interest

On accounts that pay interest, there are two important facts that you should consider in order to choose the account that will earn you the most interest. Interest may be paid at the end of each month or twice a year – semi-annual interest is paid on April 30th and October 31st.

How interest is calculated

Interest is calculated in three ways: daily, monthly, or twice a year.

  • Daily means that the interest is calculated on the balance in the account every day. The bank adds up the interest from all those days and pays the total to you on the last day of every month.
  • Monthly means that the amount of interest is calculated on the last day of the month. Interest is usually calculated only on the lowest amount you have in you account all month. This is called your minimum monthly balance.
  • Every six months means that the amount of interest is calculated twice a year. The interest payment calculation is based on your minimum balance during the six-month period ending April 30th and October 31st.

Credit checks

Most financial institutions will not open a bank account now, unless you give them permission to check your credit rating. If your rating is poor the financial institution may refuse to open an account for you. However, it is my understanding that you cannot be refused access to the banking system. So if you are turned down for a bank account call the bank ombudsman. Each bank have their own and file a complaint. See if he or she can help you.

No one cares more about your money than you - so become an informed financial customer. You will be glad that you did!