Canada’s financial ecosystem is made up of banks, credit unions, trusts, and other financial and insurance companies and it is considered to be one of the most sound and safest in the world. According to the Global Competitiveness Report 2019, published by the World Economic Forum, Canada ranked 9th globally for its financial system, showcasing stability and reliability.
As you plan your move, familiarizing yourself with the Canadian banking and financial landscape can help provide context to key tasks like opening bank accounts, building credit history, borrowing money, and filing taxes.
In this article:
What are the types of financial institutions in Canada?
Financial institutions in Canada can be classified into three main categories:
1. Banking institutions
These are places where you can deposit, withdraw and borrow money. Examples of such institutions include banks, online-only banks, credit unions, trust companies, mortgage companies, etc.
A bank is licensed to receive deposits and make loans. Most banks are managed by the national government. The five largest banks in Canada are often referred to as the “big five” in banking. They are: Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO), and Canadian Imperial Bank of Commerce (CIBC). Sometimes, you may hear the term “big six,” including the National Bank of Canada – although, note that its operations are primarily focused in the provinces of Quebec and New Brunswick.
In addition to these banks, there are a few digital-only banks, such as Tangerine (a subsidiary of Scotiabank), Simplii Financial (a subsidiary of CIBC), and EQ Bank. They provide all services online only and do not have any physical branches.
A credit union is a smaller financial institution that is owned by its members, who are also typically account holders. They operate under provincial legislation and regulations and provide similar services as banks. The main difference between a credit union and a bank is their structure; credit unions are owned by anyone with money in the credit union. The operations are supervised by a democratically elected board of directors made up of local community members. Due to their scale of operations, note that credit unions may have fewer branches and ATMs than a big bank would.
As a newcomer to Canada, you can choose any financial institution of your choice. However, it is helpful to know that the big five banks (like RBC) have newcomer banking packages that specifically cater to permanent residents and international students and are thus better positioned to assist you in your unique situation.
Read: How to chose a Canadian Bank account as a newcomer for tips to select the best banking partner for your needs.
Trust companies are legal entities similar to banks that act as an agent (on behalf of a person or business) for the purpose of administration, management and the eventual transfer of assets to a party.
Money lending entities such as mortgage finance companies (MFCs) and mortgage investment corporations (MICs) provide real estate financing. MFCs are non-depository financial institutions that underwrite and administer mortgages sourced through brokers. Their lending is funded mainly through securitization or direct sales to third parties, primarily the big six banks. MICs and other private investors typically deal in uninsured, customized mortgage products that are not available through traditional channels. These products include non-prime loans, second mortgages and very short-term mortgages.
|Key financial authority: The Bank of Canada
The Bank of Canada is the nation’s central bank. Its principal role is to promote the economic and financial welfare of Canada. The Bank influences the supply of money circulating in the economy, using its monetary policy framework to keep inflation low and stable. It promotes safe, sound and efficient financial systems, within Canada and internationally, and conducts transactions in financial markets in support of these objectives. Additionally, the Bank of Canada also designs, issues and distributes Canada’s bank notes and acts as the “fiscal agent” for the government of Canada, managing its public debt programs and foreign exchange reserves. It also sets the interest rates in Canada.
2. Insurance companies
These are entities that sell insurance to cover the risk of loss in various situations, caused due to a variety of factors. They include homeowner or renter’s insurance, health insurance, car insurance, life insurance, and more. They compensate you for any loss that’s covered by your insurance policy. Once you purchase a specific type of insurance, you are required to make periodic payments, called premiums, to the insurance company to avail of the agreed-upon coverage.
3. Investment companies
These are organizations that focus on investing, administering or managing funds or money on behalf of other persons. Examples of such companies are investment banks, hedge funds, underwriters, and brokerage firms.
There might be an overlap in the services provided by financial institutions. For instance, a leading bank like RBC offers banking services, mortgages, a wide variety of insurance options, investment solutions, and more.
Beware of predatory lenders offering payday, instalment, and other types of loans with very high interest rates. These lenders often prey upon people who need cash quickly and who have run out of all other options. They usually have exorbitant interest rates, confusing and misleading representations, and a lack of transparency and documentation. Therefore, always double-check money lending claims that seem too good to be true. Note that payday loans are provincially regulated while instalment loans are unregulated. What this means is – while interest rates cannot exceed 60 per cent, lenders are effectively free to change terms and add fees and other charges almost at will.
Getting started with taxes: The Canada Revenue Agency (CRA)
The CRA administers tax laws for the Government of Canada and for most provinces and territories. It administers various social and economic benefit and incentive programs delivered through the tax system.
The CRA website is the go-to place for everything related to your taxes: filing annual tax returns, checking receipt of Government benefits and subsidies, viewing tax documents, etc.
To register for CRA’s “My Account,” you must have filed a tax return for the current or a previous year.
|Download Arrive’s free tax guide for newcomers for insights on how to file your taxes and to make sure you’re prepared to manage the expectations that come with paying taxes in Canada.
Beware of a long-running CRA scam with callers posing as representatives of the CRA. The CRA will never use threatening language nor ask for information about your passport, health card, driver’s license, or demand immediate payment by Interac e-transfer, bitcoin, prepaid credit cards or gift cards from retailers such as iTunes, Amazon.
Canada: A credit-based economy
North American countries such as the U.S. and Canada are known to be credit-based economies. This essentially means that most people use their credit cards (instead of debit cards or using cash) to make purchases and then repay the entire amount owed either at the end of their credit card billing cycle or in installments.
You will need to build your own credit history, since this is essential to many aspects of life in Canada. Once you receive your first credit card, start by making payments for small expenses such as phone bills or groceries, and be sure you pay the balance in full by the end of the billing cycle.
Keep in mind that credit cards have limits and do not offer free money. They can carry very high-interest rates, so your balance should be managed and paid down promptly – this will help you maintain a good credit rating.
A credit score is a way for financial institutions to measure your ability to repay loans. Some scenarios where you may be asked for a credit report are while renting accommodation, applying to certain jobs, and obtaining mortgages or other loans from the bank.
Banking, investments, and money transfers in Canada
Like many other countries, in Canada, you can conduct all your banking and money transfer transactions by walking into a branch or online, through internet banking.
There are many financial products available to save and invest your money in Canada. They can be broadly classified into savings accounts, registered savings plans and investment products. Depending on your goals and your appetite for risk, you can choose one or a combination of several of these.
For domestic peer-to-peer payments (think: sending money to a friend, relative, co-worker, or acquaintance in Canada), there are a couple of ways to send and receive money online: Interac and Paypal. Interac is a bank-based tool, while Paypal is a non-bank, third party service. Among these, Interac e-transfers are the most popular and widely used form of peer-to-peer payments in Canada.
You can send money overseas through online or mobile banking, by telephone, by email, or in-person. Banks like RBC have a simplified, affordable, and convenient process for international money transfer through online banking. If you have the recipient’s banking information handy, all it takes is a few clicks!
Some popular options for international remittances are:
- Credit unions
- Money transfer operators like Western Union, MoneyGram, WorldRemit, etc.
- Peer-to-peer transfer providers such as Transferwise (now, Wise), CurrencyFair, Paypal, etc.
- Currency exchange businesses
When sending money overseas, the Canadian federal government tracks large sums (over $10,000 CAD) through Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to prevent money-laundering, terrorism funding, and related crimes.
Understanding financial products and regulatory agencies in Canada can make you feel overwhelmed. Start with the basics so you can build awareness and a strong foundation to manage your finances in Canada.