Types of Personal Accounts

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Introduction

There are only two primary categories of personal accounts offered by financial institutions (banks & credit unions) in Canada. The two categories of accounts are Chequing and Savings accounts. However, within each account category, there are several different types of accounts offered and vary based on the institution providing the account. In this chapter, discussion will be on the two categories of personal accounts to store money and the most common types of accounts offered within each category.

Chequing Accounts

A chequing account is most common and useful for everyday banking needs which includes transactions such as purchases, deposits and withdrawals. These accounts are not in most cases interest bearing, meaning that you can not receive interest income on the balance. Mostly, a chequing account will be used to receive income and pay bills. Account holders also have the option of having cheques printed for their use at an additional cost. It is important to note that there are many variations of chequing accounts available by financial institutions to fit the needs of the customer. The most common chequing account options will be covered below:

General

A general account is the most common type of chequing account in Canada. Each financial institution will offer a general chequing account with varying names. Most of the general accounts offered by financial institutions will charge a monthly fee of between $5-10, which is charged to the customer for the maintenance of the account and withdrawn at month’s end. General accounts are meant for low to medium volume activity and usually offer between 10-25 monthly transactions (includes payments, transfers, deposits, etc.). Any additional transactions would be at an additional fee, as determined by the financial institution. In addition, they will offer a limited number of Interac e-transfers (usually 2-5) as part of the monthly plan. If unaware, an Interac e-transfer is a secure and convenient way of sending money to another individual or business by sending the transfer through their email address.

Unlimited

An unlimited account can be viewed as an upgraded version of the general account. These plans are for high volume activity and offer unlimited transactions including e-transfers. However, as there are more features available, the price for these plans are higher than with a general account. Most unlimited accounts are provided for roughly $14-16 per month.

Students

A student account is one for an individual older than either 18 or 19 years old that is attending a post-secondary educational institution. One of the major advantages of this account is that there is usually no monthly fee, which is a good cost saving measure for someone that is trying to cut costs as much as possible. Also convenient, these plans usually offer more monthly transactions and e-transfers than a general account, but like general accounts, if exceeding the maximum monthly transaction limit, will result in additional fees. The primary purpose of this account is to provide students with a cost-effective (free) option.

Youth

A youth account is provided for an individual under the age of 18 years old. It creates a great opportunity for Canada’s youth to become familiar with the banking system, as well as be independent and in control of their own finances. Like a student account, the youth account is also free. However, the number of transactions that are offered are dependent upon the specific financial institution as some are unlimited, while others have a limit on the number of free monthly transactions. It is always advised that parents create a youth account once they believe their child(ren) are responsible enough to start managing their own finances. Banks are incentivized to offer these plans as they tend to be the first plan an individual sets up and becomes a very affordable way of acquiring a long-term client.

Joint

A joint account provides the same features as other accounts but allows for an additional person to access the account. This is often beneficial for children, as the parents can still monitor activity, as well as for married or common law couples that are looking to combine their finances. If deciding to choose a joint account, you would select an account as usual and add an account holder to the account being set up. Joint accounts can also be set up for savings accounts in addition to chequing.

Seniors

Not all financial institutions offer a seniors account or seniors discount on an existing account. However, for the ones that do provide these accounts or discounts, they are provided for Canadians aged 60 years and older. The senior accounts are usually similar in nature to the general chequing accounts in terms of features and are offered at low or no cost. Financial institutions that don’t provide a seniors account will often offer a discount to seniors on their existing accounts.

U.S. Dollar

For Canadians that frequently visit the United States but are themselves Canadian citizens. The benefit of this account is that it allows Canadians to have access to an account that is funded in US dollars, without having to use other methods. These accounts are provided for a low monthly fee, usually between $2-5 and offer few (1-2) transactions as part of the monthly fee.

Savings Accounts

Complimentary to a chequing account is the savings account offered by financial institutions. For most, this account will offer low interest and is best used to save money in the short term. A savings account is optimal to store your emergency fund (3-6 months of expenses) and/or to bridge the gap while trying to determine new investment opportunities. As the interest rates are low, it should not be viewed as an investment or wealth-building tool. In all situations, regardless of the type of savings accounts, the interest rate will be lower than inflation, which means your purchasing power (how much each dollar can buy) is decreased each year you hold funds in a savings account. The primary purpose is to provide a very small amount of interest income for an emergency fund or short-term savings that would otherwise not be received in a chequing account. Unlike chequing accounts, there are fewer variations of the accounts as the uses are relatively restricted and need less features and options. Below you can see the most common forms of savings accounts in Canada.

General

General savings bank accounts are, in most cases, provided by financial institutions with no monthly fee. This allows an individual to open several accounts at no cost if they so choose. Additionally, a general savings account allows an account holder an opportunity to generate interest income. However, the interest rates being offered are very nominal, usually between 0.05-0.15%. Again, these accounts are not a way to build wealth, but a short-term savings vehicle or a place to store an emergency fund. Lastly, as savings accounts are not meant to be used often, financial institutions usually only offer 1-2 free transactions per month, with additional transactions at a cost (usually around $5/transaction). Most of these accounts allow for transfers between personal accounts for free.

High Interest

A high-interest savings account is essentially the same as a general savings account except that the interest rates are higher. Most accounts offer interest rates between 0.15%-0.30%, which is still substantially low. In order to use high interest accounts, most accounts will require a minimum monthly balance of between $5,000-$15,000. Some high-interest savings accounts will allow for 1-2 free monthly transactions, while others do not. As with the general savings accounts, these will usually also offer free transfers between personal accounts.

U.S. Dollar

Much like the chequing account for U.S. dollars, the savings plans are for Canadian citizens that tend to have US dollar holdings. These accounts are comparable with other savings accounts in that they offer 1-2 transactions per month for free, have no monthly cost and provide a nominal interest rate, which ranges greatly depending upon the financial institution that offers them. Keep in mind that not all financial institutions offer a US Dollar savings account.