The Money Dispensary

Welcome to the basics of banking and investing!

Believe it or not, there are financial institutions other than the Bank of Mom and Dad. Financial Institutions provide so many products and services so getting stared can be overwhelming. With all the various accounts, how do you know which is one right for you? It’s important to know what options are available for you. Banking is not limited to just the Big 5 (RBC, TD, Scotiabank, BMO & CIBC). You also don’t have to go with the same bank the rest of your family uses. You need a bank that caters to your specific needs and priorities. Let’s start with the basics:

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What are the major differences between a chequing and a savings account?

  Chequing Savings
Purpose Day-to-day spending Emergency fund & short/long term saving
Monthly Fees Yes (most financial institutions will offer free banking to students but you will need to confirm your full-time enrolment with them at the start of each year)  None
Interest Rates None Little
Transactions Unlimited or Monthly limit Check with you financial institution
Incentives Waived fees for carrying minimum balance or bundling with other products Receive higher interest rates as you save more money

This table does not cover everything. With all the various banking institutions that exist, there are definitely some exceptions. Now that you have a better idea of these accounts, you might be wondering where you should bring your money. Let’s go over three methods: traditional banks, direct banks and credit unions.

Traditional Banks

The brick-and-mortar banks are what you will encounter the most. The main advantages of traditional banks over the other two alternatives are the numerous locations and the ability to interact one-on-one with a representative. Being able to develop a personal relationship with your bank can be beneficial for negotiating better rates. As you explore this option, you will notice these banks have student chequing accounts. These accounts are often free but have limited monthly transactions. Note that banks may automatically change your account type upon graduation. Be mindful of this so you are not caught off guard!

Direct Banks

As mentioned earlier, banks are not just limited to the Big 5. It would be wise to look at direct banks such as PC Financial and Tangerine. These institutions are primarily online-based but have little to no fees at all – even for their chequing accounts! The companies also offer competitive rates on both borrowing and saving. If you don’t have the need to visit banks in-person, they may be a good alternative to the traditional banks. If you need to withdraw cash, you can access one their partnered Automatic Banking Machines (ABMs) free of charge.

Credit Unions

The last alternative you could look into is credit unions. One of the key differences between a bank and a credit union is that you’re not necessarily a “customer” of a credit union but rather a member. If you decide to join a credit union, there is generally a $25 initial deposit to become a member (which you will get back if you decide to leave). When you buy into the union, you are essentially a shareholder of the company. Members of a credit union will generally have better borrowing and saving rates as well as fewer fees than a traditional bank. Credit unions are smaller in scope than traditional banks so physical establishments are harder to come by.

With all these institutions and their various products, it can be very time consuming to do thorough research. Luckily, the Financial Consumer Agency of Canada (FCAC) has you covered. The website has an Account Selector Tool which includes a comprehensive database of all bank accounts. You can filter by services, discounts, and type of account.

Tax Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) are excellent saving vehicles, but it can be confusing as to which option you should use. We’ll try to simplify each alternative so you can decide what works best for you.


Tax Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) are excellent saving vehicles, but it can be confusing as to which option you should use. We’ll try to simplify each alternative so you can decide what works best for you.

Tax - Pay the taxman now or later

Your contribution is deducted from your income, which may result in a tax refund, but your money will be taxed when you use it down the road. You do not get a tax break, but when you need your cash, it won’t be taxed when you take it out.



Contribution - What's my limit?

Have a contribution limit of 18% of your previous year’s income (to a max of $25,370 for 2016). $5,500.00 limit per year.
Both plans allow you to carry forward funds so that you can "catch up" on the years when you weren't able to save.


Accessibility - What if I need money ASAP?

If you have an emergency and need to access money, there will be a tax liability payable that year. RRSP’s will allow first time home owners a $25,000 withdrawal and for those furthering their education a $20,000 withdrawal is also permissible. Note: This money must be repaid within a specific time frame or you will face serious tax problems! A flexible option that allows you to withdraw funds tax-free. Depending on the type of investment in your TFSA, you could have access to your funds as soon as the next day. See your financial institution for more information.


Considerations - What am I saving for?

Funds usually remain invested until retirement due to tax consequences of early withdrawal. However, if your employer matches your contributions to a workplace retirement savings plan, you should take advantage of RRSPs. This is “free” money and should be priority over other options if you can’t do both. The accessibility of TFSAs is an important consideration if you have different goals than saving for retirement. If your goals are saving for a wedding, a car and travel, this may be a better option now.
If you are carrying debt, be it a student loan or credit card, retiring the debt can be an excellent investment as well. Once you have cleared the debt, beginning a savings plan with the same funds (that you previously put towards debt repayment) can be a part of your budget.  

Deciding on one option over the other or deciding on a combination of both is difficult. Consider consulting your bank, credit union, or make an appointment with Mo' Money today!

For more information on RRSPs and TFSAs visit: