Rounding it up
If you’re thinking about moving to Canada, you should get a grasp of how money works here.
To start, there are three types of financial institutions: traditional banks, credit unions, and digital-first banking alternatives.
There are also various types of accounts, each with their own purpose. The most common and important are chequing and savings accounts.
Know the differences between a debit and credit card. The former will be provided by your bank so you can manage your daily finances; the latter will help you build credit.
If you’re thinking about immigrating to Canada, you’ve likely got a lot on your mind. You need to think about where to live, when you’ll get your next job, what your health care will look like, and how to connect with your new community. On top of that, you need to consider how money works in Canada.
While banking in Canada is similar to many other countries in the world, there may be accounts and terms with which you’re not familiar. Setting up your banking is a straightforward process, but with so many financial institutions and options available, you’ll want to educate yourself before making any decisions. Here’s everything you need to know about banking in Canada as a new immigrant, foreign worker, or international student.
Types of financial institutions in Canada
Financial institutions in Canada are very stable and are a safe place to keep your money. The government cannot seize money in your bank account, and your account deposits may be protected by deposit insurance. With that in mind, there are three types of financial institutions with which you should become familiar.
Although there are many banks in Canada, the country is dominated by the “Big Five.”
Bank of Montreal (BMO)
Bank of Nova Scotia (Scotiabank)
Canadian Imperial Bank of Commerce (CIBC)
Royal Bank of Canada (RBC)
Toronto-Dominion Bank (TD)
These banks have a massive presence throughout Canada, so it’ll be easy to find one of their brick-and-mortar locations or automated teller machines (ATMs). You can walk into any of these banks to set up your banking needs, making them a popular choice among newcomers.
Credit unions / caisses populaires
Credit unions are a type of financial institution that puts greater focus on their members. Since they operate under a not-for-profit model, revenue earned is invested back into its operations and community. As a result, the fees are typically lower than those of a traditional bank, while the benefits may be greater.
Although credit unions don’t have as many branches across the country compared to traditional banks, they’re still incredibly popular, especially in Quebec and in western Canada.
Digital-first banking alternatives
Over the years, Canadians have become tired of high banking fees and low interest rates. In response to the demand, many digital-first financial alternatives have emerged, including KOHO. As you may expect, all of your personal finances are managed online. Since they have no physical locations, these institutions have lower operational costs and can pass those savings over to their clients in the form of no or limited fees.
In addition, digital financial institutions will typically pay interest on any money you deposit. For example, KOHO pays you interest* on your entire account. That’s quite the contrast compared to traditional financial institutions that usually offer little to no interest at all. While it’s possible to use a digital bank exclusively for your personal finance needs, many people use them in conjunction with a traditional bank.
"Financial institutions in Canada are very stable and are a safe place to keep your money."
Opening a bank account
You’ll want to open a bank account as soon as you can since it’ll allow you to deposit money, use ATMs, make purchases with a debit or credit card, transfer money, and fulfil other day-to-day banking needs.
Most financial institutions offer similar services, so it doesn’t matter where you open up your accounts (Although we are partial to you coming to KOHO first!). Most newcomers to Canada will simply choose a bank or credit union that’s close to where they’ll be living. That said, since each institution’s fee structures can differ quite a bit, it’s worth doing some additional research to minimize your costs and maximize the benefits.
When you’re comparing the various financial institutions, check if they have any newcomer packages. These banking plans can be beneficial as they may have low or no fees for a limited time. The financial institution may also be able to set you up with a credit card, safe deposit box, cheques, and more.
If you’re looking to get a head start, it may be possible to open a bank account before you arrive in the country. If you’re a customer at or have access to a bank with operations in Canada, they might be able to help you set up your accounts since you have an established relationship with your financial institution and can prove your identity. This can be convenient since you’ll already have your banking in place when you land.
Even if you’re starting fresh, opening an account is not difficult. You don’t need to have a secured job, nor do you need to have any money to deposit. In most cases, you only need to show up in person and have an acceptable form of identification to open an account.
It’d be even easier with a digital bank, since you can sign up in the comfort of your home. You’d just need a smartphone and some form of identification.
Types of bank accounts
What you’ll quickly realize is that there are multiple types of bank accounts and packages out there. While each individual bank may have different names for the various accounts, they all perform the same basic functions. As long as you understand how they work, you’ll be able to easily pick the accounts that best suit your needs.
The most common type of bank account is a chequing account. Think of it as your spending account since you’ll likely use it to pay for your everyday expenses. Big banks’ chequing accounts cost low to no monthly fees, but they also come with limited perks and transactions. For example, you may only get 15 transactions a month, and all additional transactions would incur extra charges. These transactions also include withdrawals, so you’d have to manage your account to avoid paying more than you have to.
Not to toot our own horn, but KOHO does things differently. Our spending account is completely free, and would never place a limit on the number of your transactions (go off, sis!). We also won’t charge you for any ATM withdrawals, non sufficient funds, overdrafts — you get the gist.
Financial institutions may also offer chequing accounts that give you unlimited transactions and additional perks like exclusive credit cards. However, the monthly fees could be much higher. That said, some banks offer rebates on these accounts if you meet certain conditions, such as keeping a minimum balance.
KOHO also offers an Extra account, but we give you way more than a fancy card (which you still get, of course!). For $9/month or $84/year, you can get 2% cash back on 3 major spending categories, customized financial coaching, waived foreign exchange fees, and so much more. You can decide if it’s the account for you using our 30-day free trial.
Don’t forget, if you’re an international student or newcomer to Canada, you may qualify for special offers. And regardless of which chequing account you choose, your financial institution should be able to issue you a debit card.
Savings accounts are used to park and hopefully grow your money. These accounts typically don’t have any fees, and offer interest on the deposited funds.
Although savings accounts are meant for saving, traditional banks often offer subpar interest rates. While savings accounts are outstanding for any short term goals, there are better, investment-focused options if you’re thinking long term.
"When you’re comparing the various financial institutions, check if they have any newcomer packages."
Registered Retirement Savings Plan (RRSP)
If you’re thinking super long term, consider a Registered Retirement Savings Plan (RRSP). For every dollar you contribute to your RRSP, you get an immediate tax break for an equivalent amount. For example, if you contributed $1,000 to your RRSP, you could reduce your taxable income for the year by $1,000.
An important fact about RRSPs you should know is that you gain contribution room on income earned in the previous year. That means you won’t be able to put any money into your RRSP during the first calendar year you arrive, since you wouldn’t have made income in Canada the previous year. Once you start working, you’ll be able to contribute the following year. Your contribution room is based on 18% of your previous year’s earned income; any unused space carries forward.
Once you have money in your RRSP, you can invest it in things such as stocks, exchange traded funds, guaranteed investment certificates, and more. When you eventually withdraw the funds from your RRSP, you’ll be taxed. However, the assumption is that you’ll have a lower income during your retirement years, so you’ll be taxed less.
Tax-Free Savings Account
A Tax-Free Savings Account (TFSA) is another account that allows you to invest in various products. Although you don’t get an immediate tax break, any gains made within your account are completely tax free when you make a withdrawal. This can be quite handy if one of your investments skyrockets in price since you won’t have to pay any taxes.
To open a TFSA, you need to be a resident of Canada, have a social insurance number (SIN), and be 18 years of age or older. How much you can contribute depends on the annual TFSA dollar limit, which is set by the Government of Canada. This amount is available to you right away. For example, if you arrived in 2021, you would immediately get $6,000 in contribution room for your TFSA. You would get additional space every year that you’re a resident.
When used effectively, TFSAs can be a great tool to help you build wealth, so be sure you read up on all the rules. One thing to note about TFSAs though: They’re not beneficial if you’re coming from the U.S., as the U.S. government doesn’t recognize it as a tax shelter. You would have to pay taxes on your investments within the account, which would defeat the purpose of having a TFSA.
Registered Education Savings Plan
If you have kids or are thinking about having kids and you want to save for their education, then a Registered Education Savings Plan (RESP) is where you want to invest your money. You don’t get any tax breaks, but when the money is withdrawn, it is done so under the student. In most cases, they won’t have much income, so the withdrawals are tax-free.
In addition, when you contribute to an RESP, the government will match you by 20% thanks to the Canada Education Savings Grant (CESG). The grant does have an annual limit of $500, but there’s a lifetime limit of $7,200. To simply put it, there’s no better way to save for your children’s future education costs.
Debit versus credit cards
When setting up your banking in Canada, you’ll most likely be issued a debit card so you can easily access your bank accounts. Applying for a credit card is optional, but it’s in your best interest to get one. It’s vital to know the difference between the various types of cards.
How debit cards work
You’ll be able to do the majority of your banking with a debit card. It lets you access your bank accounts via an ATM and serves as ID when you need in-branch services. Your debit card also allows you to make purchases in-person or online. Since debit cards only allow you to access the funds that you have in your account, you don’t need to worry about making payments later and will be able to better manage your finances. For this very reason, however, you won’t be able to build your credit score.
How credit cards work
Credit cards are like a short term loan. When you purchase with your credit card, you don’t need to pay back the charge until a later date. As long as you pay your bills in full by the due date, you won’t have to pay any interest. However, if you don’t make the full payment, or if you’re late with your payment, you’ll face some pretty steep interest charges. Despite this risk, however, credit cards are useful because they offer some additional benefits like cash back or travel rewards, and can build your credit score.
Not all newcomers and international students may qualify for a traditional credit card right away. Without an established credit history, credit card lenders may be hesitant to approve you. It’s a bit of a catch 22 as having a credit card is one of the best ways to build your credit score, but you may not qualify for one without a credit score in Canada.
KOHO delivers the best of both worlds. You get a prepaid credit card that offers competitive cash back with every purchase, but don’t run the risk of credit card interest since you only use a preloaded amount. Plus, we don’t require any credit checks, so international students and newcomers are totally welcome. We also have an optional credit building feature, which can improve your credit score in just six months. It’s a pretty great setup if we do say so ourselves.
The bottom line
One of the first and most important things you should do when you arrive in Canada is setting up your banking. By doing your research in advance, you’ll know exactly what to expect and which financial institution and services best suit your needs.
*Interest rates are per year, calculated daily, paid monthly, and can change at any time without notice.
Barry Choi is an award-winning personal finance and travel expert. He regularly appears on various shows in Canada and the U.S., where he talks about all things money and travel. His website - Money We Have - attracts thousands of visitors daily, looking for the latest stories on travel and money.