When should you open your first bank account?

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When should you open your first bank account?

Rounding it up

  • The best time to open a bank account is now. It’s vital to your everyday finances, from making a transaction and setting up payroll to leasing a car and securing a mortgage.

  • Fortunately, it’s easy to open a bank account in Canada. Just ensure you have a valid photo ID and proof of residency/status.

  • Find out which account you want to open. Chequing accounts are great for day-to-day banking, while savings accounts can help you reach long-term money goals. You can also open both.

  • Once you’ve opened your account, manage it well by automating any recurring payments and sticking to a budget.

8 min read

Jasmine Wheeler
#banks#bank account#savings account#chequing account

Opening a bank account exposes you to a wealth of opportunities that a cash only lifestyle just doesn't offer. That’s why we've put together an easy-to-digest guide on how to open a bank account and start your journey into the exciting world of finance.

But first, let's dive into a little regulatory overview, shall we?

The nature of Canadian banks

Canadian banks are secure, stable, and profitable. The banking sector is wholly regulated by the government and strict guidelines, which makes them safe in the eyes of the average consumer. In Canada, there are five Schedule 1 banks, otherwise known as The Big Five:

  • The Royal Bank of Canada (RBC)

  • Bank of Nova Scotia (Scotiabank)

  • Toronto-Dominion Bank (TD Bank)

  • Bank of Montreal (BMO)

  • Canadian Imperial Bank of Commerce (CIBC)

All five banks have a massive physical presence throughout the country, so you can walk into any of their brick-and-mortar locations to set up your banking needs.

Alternatively, you can turn to credit unions or digital-first financial alternatives like KOHO. Thanks to their business models, these options often provide clients with lower fees and a greater focus on consumer needs rather than simply focusing on a bank’s bottom line.

KOHO Signup Link

What's in a bank account?

There are a ton of benefits that come with opening a bank account.

1. It keeps your money safe

Keeping cash exposes you to risks such as theft, squander, accidents, and natural disasters like fires and floods. Depositing money in a bank protects your hard-earned dollars. All Canadian savings accounts are CDIC-insured up to $100,000 for every insured class held by participating Canadian banks. So, if anything bad happens to your bank, causing it to disappear without warning, your money will be intact, but up to a limit of $100,000. You can find out whether your bank is CDIC-insured on their coverage list portal.

Opening a bank account also entitles you to a debit card protected by a personal identification number (PIN). Not only can you use this card to make purchases and withdrawals, you can also use it to access all your bank's other branches without restrictions, as well as the ATMs of other banks.

2. There are plenty of support services

Banks usually set up customer support options to help their customers through various banking issues. Services such as 24/7 online support, telephone banking, rewards, discounts, and cash back offers are ways by which banks meet their customers right at their point of need.

3. It allows for simplified money management

The bank will assist you with daily banking transactions like domestic or cross-border funds transfers and deposits. A bank account also allows you to make transactions on the go. For example, when you're shopping or traveling and are short of cash, your banking details can help you to pay for goods and services hassle-free.

What you'll need to open a bank account

Here are some things to expect when opening your first bank account.

The financial institution will ask for basic information including:

  • Your name

  • Proof of Canadian Residency/Landed Immigrant Status, or a Study/Work permit

  • Legal photo ID such as a passport, Canadian driver's license, or a Permanent Resident Card. Permissible ID varies across provinces, so call your financial institution to check in advance.

As long as you have the above documents, you’ll be able to open a bank account in Canada, even if:

  • You are unemployed

  • You don't even have money to save in the account

  • You have a poor credit history

  • You have been declared bankrupt

Banking & financial services in Canada

Let's delve more into the conveniences that Canadian financial institutions offer.

Debit cards

Banks or credit unions issue debit cards linked to your chequing and/or savings accounts. With a debit card, you can safely shop online and easily deposit or withdraw cash.

KOHO’s prepaid Mastercard works similarly to a debit card, but gets you cash back.

Electronic banking

Say goodbye to bulky and inconvenient paper bills! With electronic banking, you can:

  • Monitor your account balance and activities

  • Make and automate bill payments

  • Send e-Transfers

Electronic banking is convenient as it saves you the stress of going to the physical bank to take some of the aforementioned actions. When you’re opening an account, ask the bank teller to enable e-banking services.

KOHO Signup Link

Direct deposits and withdrawals

Thanks to auto payments, a bank account gives you control over your direct deposits and withdrawals.

Recurring deposits

Monthly payments from your employer count as recurring deposits. You can sanction your bank to have your paycheque sent directly to your account, otherwise known as direct deposit. By setting up direct deposit, you can streamline your payroll and avoid going to the bank or an ATM to deposit your paycheque.

Recurring withdrawals

Have recurring mortgage payments or utility bills? You can ask a bank teller to enable direct withdrawals and automate these payments. Many businesses allow you to pay your bills in this way, making sure you never miss a payment.

What kinds of bank accounts should you get?

In Canada, there are two main kinds of bank accounts: The chequing account and the savings account. It’s a good idea to open both accounts, and you can usually do so simultaneously.

The chequing account

Start by opening a chequing account so you have easy access to your money whilst keeping it safe. With it, you can:

  • Perform day-to-day transactions, pay bills, and settle purchases

  • Deposit and withdraw your money anytime you like

  • Make pre-scheduled payments to automatically pay your bills

While chequing accounts are necessary and valuable, they usually don’t earn interest. They may also come with additional charges depending on how you use the account, so keep your eyes peeled for any fine print.

At KOHO, we do things differently. Our spending and savings account is completely free, however you use it (unless you choose to use the Premium account, which incurs a flat fee of $9/month or $84/year).

The savings account

You can think of a savings account as housing for money you don’t intend on using for the foreseeable future. It’s a good place to stash away emergency funds or save for goals like a wedding or a home makeover. Open a savings account if you:

  • Want to set up emergency funds or save for special purchases

  • Don't need to withdraw money every day

  • Want to earn interest

Savings accounts typically come with lower transaction charges than those of chequing accounts.

At KOHO, we don’t require you to set up a separate savings account, because you get to earn interest* on your entire account. That way, you don’t lose out on earning interest on your chequing account, as is the case with many traditional financial institutions. With us, you can spend and save, all in one place.

Savings plans

The Canadian Government has developed seven special savings accounts that support tax-free savings to help you reach financial goals that could be otherwise difficult to achieve with just a regular savings account. You can open these accredited accounts at banks throughout Canada.

  • Registered Retirement Savings Plans (RRSPs) assist account holders with building a retirement nest egg

  • Education Savings Plans (RESPs) put money away for your child's education

  • Registered Disability Savings Plans (RDSPs) are useful when trying to secure the financial future of loved ones who are handicapped

  • Registered Education Savings Plans (RESPs) help parents pay for their children's post-secondary education

  • Tax-Free Savings Accounts (TFSAs) allow people to hold a variety of assets, like cash, stocks, and mutual funds in one place, completely tax-free

  • High-Interest Savings Accounts (HISAs) pay a higher interest rate than regular savings accounts, and are great if you’re saving up for something near-term.

  • Youth Savings Accounts help Canadian dwellers of 18 years or younger save for the future and prepare them for adult banking.

KOHO Signup Link

Tips for managing your first bank account

1. Keep a budget

So you’ve opened a bank account — congratulations! You’ve achieved a major milestone. But your financial journey doesn’t stop here; now you have to manage your brand new account. Setting up a budget is one of the best ways of being an accomplished bank account holder.

Know your inflows: You need to know from where money is coming in to know where it's going out. Review your bank statements or payslips to get the big picture of your cash flow.

Calculate your expenses: Keep track of the money spent on your needs such as food, clothing, utilities, and entertainment. Determine a percentage from your income for your monthly expenses and stick to it.

2. Apply the 30-day savings rule

The 30-day savings rule is a budgeting trick designed to help anyone save. It encourages you to control impulse buying by deferring a purchase by 30 days. If you find yourself not craving the item after 30 days, it probably wasn't worth it. If you still want to make that purchase after 30 days, go for it. Human beings are emotional creatures, and sometimes we need a good rule to manage our behaviour.

3. Build a solid credit score

Building a healthy credit score is vital in Canada. It can dictate your eligibility for bigger loans purchases, like a mortgage.

A credit score is a number ranging from 300 and 900 that informs financial institutions of your creditworthiness. Points that are above 660 mean that you're low-risk and can comfortably repay your loans when they're approved.

There are so many ways to build a strong credit score, but they all require you to have a bank account — and keep up with it.

Luckily, KOHO also has a Credit Building feature that helps Canadians improve their credit score with little to no involvement by the user.

The best time to open a bank account is now, as it is the very core of every financial decision. Find out which types of accounts work for you, then open and manage them well to foster and maintain great financial health.

*Interest rates are per year, calculated daily, paid monthly, and can change at any time without notice.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our Subscription Plans page for our most up to date account information!

Jasmine Wheeler

Jasmine Wheeler is a California-based freelance writer with finance and real estate in her DNA. She has spent the last three years writing about Finance and real estate. She is a big football fan and also a cryptocurrency enthusiast.

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