NewBindian Banking Basics 1

Banking Basics

Banks — love them or hate them, it is almost impossible to go through our lives without being associated with at least one of them. A regular chequing or savings account can simplify life because it allows you to use your convenience card for debit transactions and eliminates the need to carry large amounts of money.

Having a chequebook gives you the freedom from having to remember the payment date for all your bills as a cheque can be used to set-up pre-authorized debits. Need to rent a car, a tool or any other equipment? You will find it hard to do without a credit card. And I am not even mentioning the banking “heavy-weights” like mortgages, loans and personal lines of credit.

Banking is an everyday reality, but it may not be as simple for new Canadians.

It can be a challenging experience if you don’t know where to start or what all the English banking terms mean. Let’s explore some of the steps that you can take to start your day-to-day banking in Canada.

Open a bank account
There are many financial institutions you can choose, from big banks like RBC to regional credit unions like Vancity. Whichever appeals to you, most financial institutions will warmly facilitate the process of opening a banking account for a new client — because it is your entry point into the bank and can lead to the sale of their other financial services. Note that you must have your landed immigrant papers as well as a secondary piece of identification in order to complete the process.

The bank account will give you access to a convenience card (bank card), which will allow you to make deposits and withdrawals from any of their ATMs (automated teller machine), as well as all kinds of retail purchases. Ask to be set up on online banking so you can pay bills and manage your accounts over the internet from your home.

Sign up for a credit card
Getting a credit card is sometimes a little trickier for newcomers, as banks want to know your credit history, employment status and income first. If you already had a credit card with one of the major companies (Visa, MasterCard, American Express) before you arrived in Canada, then the process can be a little easier. Your income, along with the total amount of your expenses, will determine the credit limit available on your card.

If you’re declined a traditional credit card, ask for a prepaid credit card. In this case, you actually make a deposit onto the card and can spend up to that amount — it’s a great way to establish your credit history. So is paying all your bills on time and managing your money well. Think of it as building your financial reputation in Canada — the more responsible you are, the more benefits you will enjoy.

Get a loan
Most financial institutions will give you access to loans and lines of credit only once you have established some sort of credit history in Canada. Your credit history, in very simple terms, is simply a record of your making payments on your obligations in a timely and regular fashion. Your credit history, along with a summary of your assets and liabilities, will determine your credit score, which in turn determines how much money you can borrow.

Loans and lines of credit fall into two categories: secured or unsecured. A secured loan is guaranteed by some collateral, either an asset (i.e., car, house) or cash reserves (i.e., investments). An unsecured loan does not carry any guarantee other than the ability of the borrower to continue making payments, normally via a stable job and good income. They are generally more difficult to get.

If you’re new to Canada, a secured loan may be your best option. But, if you don’t yet have large assets in Canada like a house, using investment income as collateral for a loan is a good option because these are the easiest products to obtain since you are not borrowing from the financial institution. You can invest in a large variety of options and these investments can be used as collateral for loans and lines of credit.

Invest in yourself
The most popular investment products are guaranteed investment certificates (GICs), Canada Savings Bonds, mutual funds and registered retirement savings plans (RRSPs). These are the basic investment products and there are more complex ones as well. Investing can bring with it some risk, however, so your best bet is to sit down with a financial adviser and understand all the options.

More options
With a little collateral and a good credit history, getting a loan or line or credit, including a mortgage for a new home (check out our Mortgage Guide), will become easier over time.

This article first appeared HERE and HERE.

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