The Canadian banking system is convenient and reliable, though its services are not always free. Before you decide on a preferred bank, take into consideration who offers the best loans and credit cards for your needs.
Canada’s Largest Banks
According to the World Economic Forum’s Global Competitiveness Survey, Canada is one of the top three countries with the safest banks in the world. Canada has had only two small regional bank failures in almost 100 years.
The Canadian banking system is developed and extensive. There are almost 90 banks, nearly 6,000 bank branches, and over 18,600 bank-owned ATMs across Canada (the highest number per capita in the world).
Canada’s largest banks by total assets (the ‘Big Five’ banks) are Royal Bank of Canada, Toronto-Dominion Bank, Scotiabank, Bank of Montreal, and Canadian Imperial Bank of Commerce.
Royal Bank of Canada (RBC)
It is the largest bank in Canada by total assets and market capitalization. RBC helps newly-arrived immigrants in many ways: it offers a bank account with no monthly fees for one year, two no-fee international money transfers per month for the first 6 months, as well as a car loan, credit card, and mortgage with no credit history required.
Toronto-Dominion Bank (TD)
TD offers newcomers no monthly fee for 6 months, unlimited transactions for chequing accounts (withdrawals, bill payments, etc.), and free money transfers using Interac e-Transfer. Also, immigrants can open a bank account and transfer up to C$25,000 before they arrive in Canada.
The Scotiabank StartRight® Program charges immigrants no monthly account fees on a Scotia One™ chequing account for one year, offers unlimited e-transfers and transactions, a free small safety deposit box for a year, and a credit card with no credit history required. It also allows newcomers to open a bank account, and transfer up to C$50,000 before arriving in Canada.
Bank of Montreal (BMO)
BMO is Canada’s oldest bank. Their NewStart™ Program offers newcomers arrived in the country within the last five years 12 months free banking with no minimum balance required as well as unlimited chequing, unlimited Interac e-transfers, and a free safety deposit box.
Canadian Imperial Bank of Commerce (CIBC)
In CIBC, newcomers will benefit from a bank account with no monthly fee for the first year,
a credit card and car loan with no credit history required, unlimited Interac e-Transfers, and up to C$55 cash back when they rent a safety deposit box.
All the banks listed above have offices in most Canadian cities. There are also many international banks’ subsidiaries such as HSBC, Citibank, J. P. Morgan Bank, Société Générale, UBS, etc.
Bank Accounts and Payment Options in Canada
Main payment options in Canada include paying by debit and credit cards, by cheques, by cash withdrawn from ATMs, and money transfers to and from bank accounts.
You can open a bank account in Canada even if you have no job and even if you are a foreign national. You usually need to go to a bank in person and provide an ID (a passport, Canadian driver’s license, Social Insurance Number (SIN) card, Permanent Resident card, etc.). You also may need an employee ID card with your picture on it or a debit or credit card with your name and signature on it.
Some banks offer low-cost accounts (around C$4 per month). They include BMO, CIBC, HSBC, ICBC, KEB Hana Bank Canada, Laurentian Bank, National Bank, RBC, Scotiabank, and TD. Free chequing accounts are offered in online-only banks (Motive Financial, Motusbank, Tangerine), as well as in Simplii (a CIBC branch). Canada’s largest banks also offer to immigrants free accounts for the first year after their arrival in Canada.
When you sign up for an account, banks usually give you a debit card that can be used to pay for services and goods or withdraw cash from your bank account. You may have to pay a fee when you use your debit card (it depends on the bank and the type of your card). There also may be different limits for cash withdrawals (from C$500 to C$5,000 depending on the bank and card), as well as limits for in-store and online purchases.
With a credit card, you can borrow a limited amount of money to pay for goods and services. Some banks charge an annual fee for certain cards. The purchase interest rates can vary ranging from 9% to almost 20%. You may need to have a credit history in Canada before applying for a credit card. To choose a credit card, you can use the Credit Card Comparison Tool.
CurrencyFair and TransferWise are the most popular tools to arrange an international money transfer. With CurrencyFair, transfers in Canadian dollars into Canada’s major banks do not incur bank charges. But there is a flat fee of C$4 for transferring money from abroad, and there also may be charges applied by a foreign bank if you transfer funds from Canada to other countries. With TransferWise, transfers to Canada have a 0.45% fee. And for transfers abroad, there is a flat fee plus a fixed percentage of the transfer amount.
The alternative is an international money transfer through PayPal or Western Union. To send money internationally using Western Union, Canadians often use Interac e-Transfer. All you need is an account in one of the participating Canadian banks.
A cheque is a written ‘order to pay’, which you sign and give to another party as payment. If the amount of the cheque is C$1,500 or less, the maximum hold period is 4–5 days, and you can access the first C$100 deposited by cheque immediately. If the amount of the cheque is more than C$1,500, the maximum hold period is 7–8 days.
ATMs (Automated Teller Machines) are often called ABMs (Automated Banking Machines) in Canada. There are ATM fees you may need to pay in Canada: the regular account fee (C$0–2), network access fee (C$0–1.90), and the convenience fee (C$1–5). There are normally no fees if you are withdrawing money from your bank’s ATM.
Loans: Types, Rates, Eligibility
To get a loan in a Canadian financial institution, you are usually required to have a credit history in Canada (except for the cases when you are applying for a payday loan), an ID, Permanent Resident card, permanent address, bank account, and proof of income. The most popular types of debt financing include personal loans, lines of credit, payday loans, and mortgage.
With a personal loan, you borrow a fixed amount of money and pay it back over a period of time by regular installments with an interest. Personal loans can be secured with your assets (if you do not pay, the lender takes them from you) or unsecured (interest rates are higher, and the lender will sue if you do not pay). You can take a personal loan to buy a car, cover medical expenses, make a down payment on a house, etc.
Most personal loans range from C$100 to C$50,000 with a term between 6 and 60 months. Annual interest rates can vary ranging from 5% to 40% depending on the financial institution, loan term and size.
Line of Credit
With a line of credit (that can be secured or unsecured) you borrow money up to a pre-set limit with no specific purpose.
Usually, the interest rate on a line of credit is variable: it may go up or down over time and is usually lower than that of credit cards and personal loans. Your credit score may affect the interest you will pay on a line of credit. Financial institutions usually require a minimum household income of C$35,000 to C$50,000 to approve a line of credit.
With a payday loan, you borrow up to C$1,500 for a short term with high fees and must pay the loan back from your next paycheck. If you cannot pay it back on time, you will face more interest charges and fees. It will increase your debt, and the lender or collection agency could sue you and seize your property.
The maximum cost of borrowing for a C$100, two‑week payday loan can vary from C$15 to C$25 depending on the province or territory.
With a mortgage loan, you use borrowed money to purchase a home. The loan is secured with the property you bought.
The minimum down payment is 5% to 20% depending on the purchase price. Terms can range from a few months to several years. Interest rates can be variable or fixed. The average fixed rate stands at about 3.5–4.0%. Your total monthly housing costs (including mortgage payment, property taxes, and utilities) should not be more than 32% of your household income.
Are Loans Popular Among Canadians?
All types of loans are extremely popular in Canada. Statistics Canada’s data states that the average Canadian household owes C$1.74 in credit market debt for every dollar of disposable income. That includes mortgages, car loans, and credit cards, among other types of debt. The ratio of household debt to personal disposable income rose from 66% in 1980 to 150% in 2011.
Canada is the most debt-laden country in the Group of Seven economies in terms of the household debt to gross domestic product ratio (over 100%). In total, Canadians owe more than C$2 trillion, according to the Bank for International Settlements.
According to Canada Mortgage and Housing Corporation, mortgage accounts for more than half of the debt burden in Canadian families. The total average household debt is higher in cities with expensive real estate and ranges from just under C$200,000 in Trois-Rivieres to almost $540,000 in Vancouver. The average personal non-mortgage debt is C$20,000.
Despite the high debt load, many economists are confident Canada will avoid a US-style mortgage crisis because of the strong labour market and growing GDP. According to Bloomberg’s analysis, in February 2019, the credit card delinquency rate in Canada was well below levels seen during the financial crisis. And the share of mortgages in arrears was close to the lowest since 1990.
Why It is Important to Build Your Credit History
You may be a law-abiding person having a lot of money, but you are literally invisible to the Canadian banking system if you have no credit history in Canada. In this case, banks can’t be sure whether you are trustworthy, no bank will give you a loan, and you will never get approved for a mortgage to buy a home.
It is recommended to start working on your credit history as soon as you arrive in Canada. For a start, get one or two credit cards. Do not accumulate debt until you have both feet on the ground. At first, use small loans to purchase goods that you will pay in 1–2 months. And when you get a steady job, you can start gradually increasing the amount of your debt.
Keep tabs on your credit score. To do so, contact Canadian credit bureaus, TransUnion and Equifax at least once a year (the access to your credit score costs C$23–24). The minimum score is 300, and the maximum is 900. You will stand well with Canadian banks if your credit score is 680–700.
Do not forget about the statement date. It is the day your credit card company checks the current state of your credit card. If you have a large unpaid debt at that moment, you are likely to lose some scores.
Getting new loans and using a credit card can affect your credit scores. It is important to keep them in good shape. To do so, follow these tips:
- Increasing the credit limit on your credit card works in your favour. C$2,500 is good enough for banks to realize that you are trustworthy and can handle finances. ⠀⠀⠀⠀
- Do not borrow more than 50% of your credit limit. If you borrow too much, banks may get the impression that you have financial problems, and it may have a negative impact on your credit score. If you can pay off a debt in time, just raise your credit limit. This way, you will get all the money you need without crossing the limit of 50%.
- Try not to have several open debts at the same time — it may have a negative impact and lower your credit score. ⠀⠀⠀
- Do not forget to pay off a debt on time or make a minimum payment. You should do it at least one day before the due date.