Choosing a Bank and a Bank Account
A bank is a financial institution, or business that stores and manages money for individuals and other businesses.
A bank invests money or loans it to people and businesses.
You put your money in a bank:
To keep it safe
To earn interest
To make financial transactions easier
Retail banks offer basic banking services to individuals, such as checking and savings accounts, credit cards, education loans, car loans, and home loans.
Credit unions also offer basic banking services. They are
nonprofit banks that are owned by the customers, or members.
1
Other Types of Banks
Online banks are retail banks that operate only on the Internet.
Investment banks help businesses and other organizations raise money by issuing stocks and bonds.
A central bank is an organization responsible for managing the banking activity of a particular country.
When choosing a bank, consider:
Convenience
Services
Interest rates
Before you choose a bank, you can compare the fees each bank charges for common services and transactions.
2
Types of Bank Accounts
A bank account is a record of the transactions between you and the bank.
When you deposit money (credit), the amount is added to your current bank account balance.
When you withdraw money (debit), the amount is subtracted from the balance.
Checking accounts let you access your money by writing checks. You can also sometimes use a debit card or
automated teller machine (ATM) card.
Savings accounts earn interest, which means the bank pays you a percentage of your balance.
You open an account by going to a branch, filling out some forms, and making a deposit.
3
Using a Checking Account
A check tells the bank how much money to take from your account and put in someone else’s account.
When you write a check, record the details in your account register.
If you have a debit card linked to your checking account, you can use it instead of writing a check.
4
Date
Amount in numbers Amount in words
Your signature A memo line for noting
what the check is for
Payee
Managing Your Bank Account
Bank records include any piece of paper that details a banking transaction such as ATM receipts or bank statements.
Be sure to record every bank transaction in your register.
A bank statement is a monthly list of all the transactions for your bank account.
To balance your account, compare it to your account register and your transaction receipts.
An Automated Teller Machine (ATM) lets you perform bank transactions without going to a branch office.
Every time you use your ATM card, enter your PIN and follow the on-screen instructions. Be sure to record the transaction in your account register.
5
Saving and Investing
When you save, you can deposit your money in a savings
account, a checking account, or an investment certificate deposit (CD).
When you invest, you take a portion of your savings and purchase a product such as stocks, bonds, or mutual funds.
Investing is riskier than saving, because the deposit is usually not insured. However, you can earn more from an investment.
The safest, most reliable, and convenient way to save is to
deposit your money in a savings account at a retail bank or credit union or purchasing a guaranteed investment certificate (GIC)
Simple interest is calculated based on the principal balance only.
Compounded interest is calculated based on the principal plus any interest that has already been earned.
6
Chapter 21 Personal Financial Planning
Understanding Investments and Retirement
With equity investments, you purchase stock in a company.
With fixed income investments, you lend money to a business or government agency in exchange for a bond.
Diversify to minimize your risk when investing. A mutual fund pools money from many of investors and uses it to buy stocks, bonds, and other securities.
Retirement is the stage of life after you stop working. It is important to start saving for retirement as soon as possible.
Tax-deferred savings plans (RRSP) are designed specifically for retirement. There is also the tax free savings account (TFSA).
Canada Pension Plan (CPP) is a government program that pays monthly benefits to retired workers who contributed to it during their working years.
7
Analyzing Credit and Debt
Credit is money that you borrow and promise to pay back.
Debt is the money that you borrowed and now owe.
A loan is a transaction in which the lender agrees to give the borrower money and expects to be repaid in full.
Each credit card comes with a set of terms and conditions that states the fees, penalties, and other charges that the company can impose.
The only way to avoid paying additional fees and charges is to pay your balance in full and on time every month.
Before a bank or retailer will give you a loan or issue you a credit card, it checks your credit history.
8
Credit Reports and Managing Debt
A credit report is a summary of your credit history.
By law, you can get a copy of your credit report for free once a year, from the three credit bureaus—Equifax, Experian, and TransUnion.
As long as you make your payments in full and on time, you are managing your debt responsibly.
Excessive debt may be caused by irresponsible use of credit cards and loans, but it can also be caused by unexpected expenses.
Bankruptcy is a process in which you declare yourself legally unable to pay your outstanding debts. It negatively affects
your credit history, making it very difficult to get credit again.
9
Paying Income Tax
A tax is money we pay the government. The government uses the money to pay for public resources.
There are three basic categories of taxes.
Income taxes are based on wages and other earnings.
Consumption taxes are based on things we buy.
Asset taxes are based on things we already own.
We pay different taxes at different rates to federal, provincial, and municipal governments.
Income tax is a percentage of your income that you pay to the government. It is automatically withheld from your paycheck by your employer.
Canada has a progressive tax system, which means the more you earn, the more you pay.
10
Filing Income Tax Returns
Income is categorized into levels, called tax brackets, ranging from 0%– 45% (combined federal/provincial)
Your tax bracket is based on your taxable income. To
calculate your taxable income, you add up all of your income and then subtract tax deductions.
Each year, you must file income tax returns by April 30th for the income you earned the previous year.
Income tax returns are forms on which you calculate the amount of income tax you owe.
You file federal tax returns to the Canadian Revenue Agency (CRA), the agency responsible for collecting federal taxes, and you also file provincial tax returns with your Tax return.
11
Keeping Your Personal and Financial Information Safe
Identity theft occurs when someone steals your personal information and uses it to commit fraud.
Keeping your personal and financial information safe is an important part of financial responsibility.
Identity thieves will do almost anything to get their hands on your personal, financial, and medical records.
You can keep your personal records in a safe, or in a safe deposit box.
If you lose your wallet or purse, take immediate steps to protect your identity and your finances.
Widespread availability and use of the Internet has led to the dramatic increase in identity theft over the last decade.
12
Analyzing Banking and Credit Regulations
The Canadian Deposit Insurance Corporation (CDIC) provides insurance for your deposits in banks.
Banks must be chartered to operate in Canada. A bank
charter is an agreement that controls how the bank operates.
Consumers have rights,
http://www.fcac-
acfc.gc.ca/eng/consumers/rights/index-eng.asp
13
The Canadian Deposit Insurance Corporation (CDIC) provides insurance for your deposits in banks.
Banks must be chartered to operate in Canada. A bank
charter is an agreement that controls how the bank operates.
Consumers have rights,
http://www.fcac-
acfc.gc.ca/eng/consumers/rights/index-eng.asp
Activity #1
Reproduce the sample cheque below and make it out for the following information:
1. You purchased a movie from Best Buy for $18.97
2. You purchased a pair of jeans from Old Navy for $34.56
Chapter Review
A bank account is a record of the transactions between you and the bank.
When you save, you can deposit your money in a savings account, a checking account, or a certificate of deposit (CD).
When you invest, you take a portion of your savings and purchase a product such as stocks, bonds, or mutual funds.
Diversify to minimize your risk when investing.
Retirement is the stage of life after you stop working. It is important to start saving for retirement as soon as possible.
Credit is money that you borrow and promise to pay back.
Debt is the money that you borrowed and now owe.
15
Chapter Review (continued)
A loan is a transaction in which the lender agrees to give the borrower money and expects to be repaid in full.
A credit report is a summary of your credit history.
Income tax is a percentage of your income that you pay to the government.
You file federal tax returns to the Canada Revenue Agency (CRA), the agency responsible for collecting federal taxes.
Identity theft occurs when someone steals your personal information and uses it to commit fraud.
Consumer credit laws are designed to help consumers and creditors meet their legal responsibilities.
16
