An accounting prof at a Toronto college got in touch not too long ago to ask for some help on behalf of some of his students. They’re newcomers to Canada and trying to balance school and learning how things work here, including banking. How about something to help them understand how banking works in Canada? For help on this, I consulted Enoch Omololu, the man behind the Savvy New Canadians blog. Here’s an edited version of a Q&A we did by e-mail:
Q: Enoch, are there any notable ways our banking system differs from other countries?
A: As a new immigrant from Nigeria in 2011, I was a bit shocked to learn I had to pay a monthly fee for a chequing account. This was unusual. Other differences include the widespread use of credit cards, reliance on your credit score to access credit and other financial products, and expensive international money transfer fees. Also, the differences in terminology for various accounts, such as GICs, TFSAs, and RRSPs, threw me off. Overall, things were more sophisticated and/or costlier.
Q: What are two or three need-to-know points about Canadian banking for newcomers to help them get acclimated quickly?
A: First, start with a big bank or a credit union to get your feet wet and explore other banking options available when you are more familiar with how things work. A bricks-and-mortar bank means you can walk into a branch and speak with someone in person if you need one-on-one assistance. Second, be proactive in learning about how credit works. To some extent, your financial life in Canada revolves around your three-digit credit score and credit history. Third, when presented with a banking service or product, ask for a detailed overview of all available options. After factoring in costs vs. benefits, the best product for you is not always the first one you get to see.
Q: Banks are increasingly offering packages to newcomers, including bank accounts and credit cards. What’s your view on these products?
A: These newcomer packages are excellent for getting started and are much better than the offerings available when I landed over a decade ago. With any newcomer packages from RBC, Scotiabank, Bank of Montreal, Canadian Imperial Bank of Commerce or Toronto-Dominion Bank, permanent residents can get a no-monthly-fee chequing account for one year and a credit card, without a Canadian credit history. Sometimes, you may need to provide a security deposit to access a credit card, but these usually apply to those on temporary visas, like international students. Some of these newcomer programs also include unlimited ‘no-fee’ international money transfers, which can be helpful for sending money back to your home country.
Q: Top tips for newcomers on establishing a credit score?
A: Get a credit card offered to newcomers since they have lower eligibility requirements and go for the highest credit limit the bank will give you. Then, ensure you pay off your balance in full by the due date each month. If you don’t qualify for a regular card, get a secured credit card that requires a deposit (collateral), which is the same as your credit limit. Be disciplined with making payments on time to avoid interest fees and negative information on your credit report. Making payments on time also applies to your rent, cell phone plan, utilities, and other bills.
Keep your credit utilization below 30 per cent of your credit limit. For example, if your credit limit is $1,000, keep your outstanding balance below $300.
Q: What frustrations do you hear from newcomers about trying to work the Canadian banking system?
A: International students and those on temporary visas may be required to set aside funds in a GIC or savings account to get a credit card. With the high cost of living here, it can be challenging to lock up $1,000 or more for several years. Banking terminology is often very different, and sometimes bank staff sell financial products to newcomers without ensuring they fully understand what they are buying. Or, banks don’t offer lower-fee alternatives that suit customers better. Cultural differences or poor experiences with financial institutions in their home countries mean some newcomers distrust banks by default. Canadian banks can help allay these fears by being transparent about fees, offering financial education and resources, training staff to be culturally sensitive, providing language support where needed.
Are you a newcomer to Canada looking for more information on how to open a bank account, save for a mortgage, or how credit scores work? This Globe guide can help you find your financial footing.
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Rob’s personal finance reading list
Call volumes are heavier than normal
An on-the-money rant about terrible phone service from companies in all sectors. A Washington Post piece that plays 100 per cent in Canada.
The cost of raising kids, 2023 edition
I’ve seen a lot of these estimates over the years. What I like about this one is that it mentions a big shift recently in Canada – the introduction of $10-a-day child care.
A new personal finance risk: Speeding on local roads
Cities are setting up speeding cameras to catch drivers, and the revenue from fines is pouring in. A camera in Toronto has brought in nearly $2.3-million, with an average fine of $107. In Ottawa, where I live, a camera on one street had issued more than 19,000 tickets as of late last year. I’m one of those people.
What’s up with interest rates?
A writer goes to the Bank of Canada offices in Ottawa to find out how interest rates are set. A really good read.
Ask Rob
Q: By putting real estate investment trusts (REITs) in my tax-free savings account, can I eliminate the tax altogether on the distribution income?
A: This is a good opportunity to highlight that the phrase “tax-free” in TFSA is just what it seems. There is no tax on the income you receive from the likes of REITs, dividend stocks, bonds and guaranteed investment certificates, and no tax on capital gains if you sell at a profit. Withdrawals are tax-free, too.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
A fact sheet on how the Canadian Investor Protection Fund works. Worth a read if you want to know how accounts can be protected if an investment company is insolvent.
We want to hear from you
Last year’s stock market drop was hard to stomach. For young adults, it might’ve been the first time they saw their money seemingly evaporate overnight. We want to speak to investors in their 20s and 30s about how they’re handling the volatility for an episode of Stress Test, our personal finance podcast. If you’d like to share your story, please e-mail kfulton@globeandmail.com
The money-free zone
The back story of I’ll Show You How by Cinnamon Soulettes is a mystery – we know it was released in the 1970s, but not much more. It’s a quiet little gem of a song, mainly vocals and piano.
From the Twitterverse
The chart shows the impact of a high cost of living in Ontario – net outflows of people to other provinces. Alberta is catching most of them.
In case you missed these Globe and Mail personal finance-related stories
- Six tips to help you file your tax return properly
- Here’s how long Canadian men can expect to live in retirement
- Wondering where to get your points? How Canada’s grocery store loyalty programs compare
- The real hit to Canadian house prices is deeper than it seems
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Rob Carrick