Canadian Bank Account Types

Canadian banks are a part of one of the best banking systems in the world. National and local banks compete to offer different types of accounts with varying features. They aim to meet the needs of any of their customers. Here are the most common bank accounts a Canadian resident can take advantage of:

Savings Account

This type of account is suitable for people who do not need their money immediately and would like to keep it deposited for a long period of time. A big advantage of savings accounts over chequing accounts is that they pay out a higher interest rate (some banks, e.g. Accelerate Financial, Peoples Trust, Canadian Direct Financial, and Canadian Tire Bank, offer to their clients a daily interest rate of at least 2 per cent).

Savings accounts typically impose restrictions on the minimum balance that should be available in the account and the number of times money can be accessed within a given period. Failure to comply with these restrictions will result in penalty fees, which will add up to the regular transaction charges. Withdrawing funds from a savings account is quite easy – you can either use your debit card at an ATM or visit your bank’s nearest local branch.

Chequing Account

A chequing account, sometimes also spelled checking account, is designed for individuals who must frequently access their money. Provided that there are available funds in your chequing account, you can withdraw from it as often as you want. The transaction processing fees are lower than those for savings accounts, and there are no monthly fees due. However, the interest paid out on money deposited in chequing accounts is very low if any at all.

You can take money from a chequing account with a debit card or by issuing a cheque. Just make sure you do not write a cheque for a sum larger than the funds you presently have in the account. Otherwise, the cheque will be returned (it will ‘bounce’), and you will have to pay a hefty penalty fee.

Money Market Account

With this type of account, the funds you deposit will be invested in various securities, and you will receive interest based on the current interest rates these securities pay out. Money market accounts require a higher minimum balance; however, their holders receive larger dividends than the owners of savings and chequing accounts. Money market accounts are designed to compete with money market funds that are offered by brokerages.

Time Deposits

Time deposit accounts require that you leave your money sit in the account without using it for a stipulated period of time. In return for this inconvenience, the bank pays a much higher interest rate than that given for the other types of accounts. While the rate of return is higher than that of savings accounts, it is lower than the profit from riskier financial products such as bonds and stocks.

Basically, the funds are deposited in a financial institution under an agreement which stipulates that money should be kept on deposit for a specified period of time. In addition, there may be a required minimum period of notification before the depositor withdraws the funds.

If you take out money from a time deposit account prior to its maturity, you will be subject to a hefty penalty. Some banks, however, will allow you to withdraw the accumulated interest as long as you do not touch the principal.

Known as term deposits in Canada, these accounts are the opposite of sight deposits or demand deposits whereby money can be withdrawn without penalty and at any time.