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FINANCIALLY AESTHETIC · GUIDE 07/37
BANKS, CREDIT UNIONS, FINTECHS & YOUR BANK STACK
FA-2.1 · Banking, Payments & Credit
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WHAT THIS CONTROLS
Where money sits changes the fees, protections, access and failure risks around it.
Identify the financial products and services you need
Before choosing a financial institution, identify the products and services you need. This can help you determine which type of financial institution best meets your needs.
Some financial institutions offer a variety of products and services. Others specialize in specific products and services.
Major Types of Financial Institutions
There are several types of financial institutions in Canada. There are also companies that offer financial products and services, such as investment services or payday loans. Each type of financial institution and financial corporation may offer different products and services tailored to specific needs.
Banks
Banks are financial institutions that provide a range of products and services. Examples of products and services include savings accounts and checking accounts, loans, mortgages, and investment products.
Credit Unions and Caisses Populaires
A cooperative is organized, operated, and conducts its business activities according to the cooperative principle. There are various types of cooperatives in the financial sector. Credit unions and Quebec caisses populaires are examples of these.
A credit union is a member-owned financial co-operative that provides a range of products and services. Examples of products and services include savings accounts and checking accounts, loans, mortgages, and investment products. Unlike banks, credit union members actively participate in the governance of the institution.
Desjardins caisses populaires (member-owned financial cooperatives in Quebec) are part of the Desjardins Group, a financial holding group. Like other credit unions, they offer a range of products and services to their members.
Fintechs: A New Concept to Understand
A portmanteau of the words “Finance” and “Technology,” the term “FinTech” refers to innovative companies that provide services to consumers or businesses in the financial sector through the extensive use of digital technologies. Often small in size, these companies are growing rapidly in many areas: electronic payment methods, savings management, insurance, lending, crowdfunding, crypto-asset services, as well as other business services (fraud control and anti-money laundering, regulatory compliance, risk management, etc.).
The massive influx of digital technologies is profoundly transforming the financial sector. Fintechs are competing with traditional banks and insurance companies and prompting them to modernize their service offerings. Banks and insurance companies are adapting by investing in these technologies themselves, in startups, and/or by forming partnerships with them.
Fintech companies may be payment institutions or electronic money institutions that offer e-wallet solutions, money transfer services, or account aggregation services. Some are credit institutions and can provide all the services of a bank, including granting loans, most often remotely and without physical branches. Some fintechs are active in the insurance sector, either as insurance companies or as brokers.
Fintechs are generally characterized by their lean structure and intensive use of new technologies such as database management, artificial intelligence, and blockchain-type networks. They often develop offerings centered around a core product. The interactivity enabled by new technologies and the absence of a physical distribution network (branches) help reduce costs. For users, the seamless customer journey (via the internet or smartphones) simplifies and broadens access to Financial Services.
One of the main challenges for fintechs is achieving a break-even point: competition is fierce in the financial sector, and profitability often requires reaching a critical mass. Also, like traditional players in the sector, they are exposed to risks such as fraud, cybercrime, money laundering, and IT failures.
Other Specialized Financial Corporations
Lending companies specialize in providing various types of loans. Examples of loans include personal loans, auto loans, small business loans, and payday loans.
Trust companies provide various financial services, such as estate planning and investment management. They also offer fiduciary services.
Mortgage companies specialize in offering mortgages and mortgage-related services. Mortgage brokers and mortgage investment companies (MICs) are examples of mortgage companies.
How These Institutions Are Regulated
Before choosing a financial institution, make sure you understand the level of consumer protection it offers. Consumer protection covers your rights when you do business with a financial institution or financial corporation. For example, the level of protection can affect:
- the information a financial institution provides when offering a product or service
- the information you can expect to receive when you apply for and obtain a product or service
- how and when you are entitled to receive information
- your ability to file a complaint if you have a problem and the resolution of any complaint you file
- the protection of your deposits through deposit insurance
- your protection against unauthorized transactions
There are different levels of consumer protection for different financial institutions. This depends on their regulatory body.
Federally regulated financial institutions are incorporated or registered at the federal level. They can operate in any province or territory in Canada. They are generally larger and offer a wider range of products and services than other types of financial institutions. Examples include:
- all banks
- federal credit unions
- federal trust and loan companies
- insurance companies
Other financial institutions and financial corporations are registered or incorporated at the provincial or territorial level. They are generally required to conduct business in the province or territory where they are registered. Examples of financial institutions and financial corporations regulated at the provincial or territorial level include:
- credit unions
- trust and loan companies
- mortgage companies
- insurance companies
- securities firms
- payday lenders
Each province and territory has its own regulatory bodies that oversee financial institutions and financial corporations. Laws and regulations may vary from one province or territory to another.
Fintech companies generally require a license to operate. As the bodies responsible for financial stability, supervisory authorities ensure that fintechs manage their risks effectively and comply with regulations, particularly regarding consumer protection, anti-money laundering, and the financing of terrorism.
Deposit Insurance: Protecting Your Money
Deposit insurance protects eligible deposits, up to a certain limit, if your financial institution enters bankruptcy. It provides a level of security for your deposits.
Most federally regulated financial institutions, such as banks, are members of the Canada Deposit Insurance Corporation (CDIC). The CDIC insures eligible deposits up to $100,000 at each member institution, for each category of deposit insurance.
If your financial institution is not federally regulated, your deposits may be protected at the provincial or territorial level. Deposit insurance programs vary from province to province and territory to territory. Contact your provincial or territorial deposit insurance agency or your financial institution to find out how your deposits are protected.
Checking Account and Savings Account: Two Tools, Two Uses
You may need to deposit your income, such as your paycheck. You may also need to make purchases on a regular basis. These are everyday transactions.
Deposit accounts, such as checking or savings accounts, are generally better suited for managing your day-to-day transactions. Deposit accounts allow you to:
- deposit money
- withdraw cash
- pay bills
- perform other transactions, such as electronic transfers
A checking account allows you to manage your daily transactions. Generally, transaction fees are lower than those for a savings account. A checking account may earn less interest than a savings account or no interest at all. Checking accounts typically include the following features:
- a debit card to access your money at an ATM and make purchases in stores and online
- checks
- pre-authorized debits
Some financial institutions have signed an agreement with the federal government to offer low-fee accounts with basic features.
Generally, a savings account earns interest on the money you keep in the account. You may not have access to the same services as you would with a checking account. In addition, you may pay higher fees for your day-to-day transactions. Many people who open a savings account also have a checking account for their day-to-day transactions.
Fees and Interest Rates
Financial institutions set the fees they charge for their products and services. These fees can vary from one financial institution to another and may change over time. They may include:
- monthly or annual fees
- administrative fees
- ATM fees
Financial institutions set the interest rates on their products. This includes products for which you pay interest, such as mortgages, loans, and lines of credit. They also set the interest rate on products that earn you interest. In these cases, the financial institution pays you interest on the money you keep in your account. Examples of these products include savings accounts and certain types of investments.
Overdraft Protection
Overdraft protection on your checking account can be a good option to cover your expenses if you use it responsibly. This protection covers the amount of a transaction when you don’t have enough money in your account.
Keep in mind that interest charges are only part of the cost of using overdraft protection. User fees can significantly increase your total bank fees.
Cashing a Check: Access to the First $100
Financial institutions must allow you to withdraw the first $100 of a check you deposit immediately. If the check is for $100, the financial institution must allow you to withdraw the full amount.
You can withdraw the first $100:
- immediately, if you deposit the check in person with a teller or bank employee at one of the financial institution's branches or at other locations where you can open an account
- the next business day after the deposit, if you deposit the check in any other way, such as at an ATM or using a mobile device
Access to the first $100 of an amount deposited by check does not apply to checks deposited by eligible businesses, such as small and medium-sized enterprises.
Cheque Hold Periods
When you deposit a check with a financial institution, you may be required to wait a certain period of time before you can access the funds. This is known as a cheque hold.
A financial institution may hold funds deposited by check to:
- ensure that the person or business that wrote the check has sufficient funds to cover the amount
- ensure that the person or business that wrote the check has not stopped payment on the check
- verify the details with the person who wrote the check to ensure that the check has not been altered
- ensure that the account from which the check is drawn is still open and has not been closed
Instead of using checks, you may want to consider making electronic deposits into your account. This allows you to have immediate access to the funds you deposit.
Federally regulated financial institutions may hold funds you deposit by check for 4 to 8 days. The time period varies depending on the amount of the check and how it is deposited. These limits apply if the check is:
- in Canadian dollars
- drawn on an account at a branch of a financial institution in Canada
- in paper form, including checks deposited using a mobile device
- encoded with magnetic ink for the special numbers line at the bottom of the check
- undamaged and readable by an operating system
If you have an account with a provincially or territorially regulated financial institution, such as a credit union or caisse populaire, ask your institution to provide you with its policy on holding funds deposited by check.
In some cases, your financial institution may release the funds to you before the check clears. If this happens, the institution is effectively extending you credit. This means that, if the check does not clear, you may be required to repay the amount of the check that was deposited into your account. If you do not have enough money to cover the amount of the check, you may go into an overdraft. This may cost you more.
The maximum check hold period may not apply in the following cases, among others:
- if the account has been open for less than 90 days
- if the check has been endorsed more than once
- if the check is deposited six months or more after its date
- if the check is not in Canadian dollars
- if the financial institution has reasonable grounds to suspect that the check is for illegal or fraudulent purposes
A federally regulated financial institution, such as a bank, must provide you with a written copy of its policy regarding the holding of checks when you open an account. The policy may be part of your account agreement or a separate document. It must include information on:
- the maximum period for which funds may be held for a check drawn on an account with a financial institution in Canada
- the maximum period for which funds deposited by a check not subject to the maximum check hold periods may be held
If the policy does not specify whether your account is subject to a hold, this decision is made by your financial institution at the time you deposit the check.
Your financial institution may change its policy regarding the hold on funds deposited by check. It must notify you of these changes before applying them to your account.
What to Look for in the Fine Print
Before signing up for a new product or service, make sure it meets your financial needs. Consider the following:
- how you plan to use it
- the benefits
- applicable fees and rates, if any
- whether it’s right for you
Do your research and compare the products and services offered by financial institutions. Make sure you fully understand the terms and conditions. This can help you determine which products and services best meet your needs.
Should you consolidate everything with a single institution, or spread your accounts across different ones?
Benefits of consolidating
- You can access all your products and services through a website or mobile application.
- It may be easier to track your financial situation, including your income and expenses.
- You may be eligible for special offers, discounts, or benefits.
- Your financial institution may better understand your financial situation and needs. This can help it provide you with more personalized advice.
Disadvantages of consolidating
- For specific products or services, other financial institutions may offer: lower fees, better interest rates, more favorable loan terms, or better investment services.
- You may not have access to new or improved features, such as budgeting tools.
- You could be exposed to greater risk if the financial institution runs into financial distress.
- If a data breach occurs, there is a higher risk that it will affect all your accounts at the same time.
Keep in mind that you’ll need to meet eligibility criteria to obtain products or services from any financial institution. You may not be eligible for all the products and services offered by a financial institution. You may need to choose another financial institution to obtain a specific product or service.
Convenience: Branches, Online Access, and International Access
If physical access is important to you, choose a financial institution that has ATMs and branches in convenient locations. There may only be a limited number of branches near you. Large financial institutions often have branches and ATMs across the country.
If you prefer online banking, check the quality of the financial institution’s online banking services, including its mobile services. Consider factors such as ease of use, security features, and ratings for mobile applications.
Consider whether a financial institution has an international presence. This may be important to you if you need to make international transactions. It may also be important if you need access to ATMs and banking services while abroad.
OPERATING RULE
Give every account a job and verify who actually holds or insures the money behind a fintech interface.
CURRENT-RULES CHECK
Legal protections, tax rates, reporting duties, deadlines and product rules change by country and over time. Use the jurisdiction labels in this guide and check the linked official source before acting.
- Choisir une institution financière - Canada.ca - https://www.canada.ca/fr/agence-con...bancaires/choisir-institution-financiere.html
- Choisir des produits et services financiers qui vous conviennent - Canada.ca - https://www.canada.ca/fr/agence-con...ces/activites-bancaires/choisir-produits.html
- Fintechs | Banque de France - https://www.banque-france.fr/fr/publications-et-statistiques/publications/fintechs
- Encaisser un chèque - Canada.ca - https://www.canada.ca/fr/agence-con...ces/activites-bancaires/encaisser-cheque.html
- Canada Deposit Insurance Corporation - What's covered - Canada - deposit-insurance scope.
- Financial Consumer Agency of Canada - Choosing a financial institution - Canada - institution types, protections and account choice.
