Banking



Banking

✓ Banks are businesses just like retail stores and manufacturing companies

✓ They earn most of their revenue by charging interest on money they loan

Bank Act

✓ Passed in 1871 to outline the rules and regulations that all banks must follow

✓ All banks that open receive a charter from the federal government which means that they are allowed to operate

✓ Canadian banks are known as chartered banks because of the relationship with the federal government

✓ Banks must make regular reports to the minister of finance

✓ 1980 revisions in the act allowed foreign banks to operate in Canada

Schedule 1 Banks

✓ Owned and operated by Canadian shareholders

✓ Shares are traded on Canadian stock exchanges

✓ Examples: BMO, CIBC, RBC, TD

Schedule 2 Banks

✓ Mostly foreign owned banks controlled by a small number of shareholders

✓ Have same powers as schedule 1 banks

✓ Government puts restrictions on number of branches allowed to have

✓ Mostly focus on corporate customers

✓ Examples: President’s Choice, Manulife, Citizens Bank

Schedule 3 Banks

✓ Completely foreign owned with permission to operate in Canada

✓ Bank act sets restrictions on these banks

Examples: Capital One, Bank West, Ubiquity

Bank Of Canada

✓ Issues Canada’s paper money

✓ It is not a chartered bank

✓ Most important function of the bank is to regulate the money supply

✓ It may also change the bank rate or prime lending rate to control money

✓ It is the minimum rate of interest the BofC charges for its loans to chartered banks

Other Financial Institutions

Trust Companies

✓ Often classified as “near banks”

✓ Provide all the same services as regular banks

✓ Other service provided by trust companies include:

✓ Purchase and sale of real estate

✓ Administer estates of deceased

✓ Maintain trust accounts for charities and young people

✓ Not regulated by the bank act – regulated by federal government

✓ Customers are protected by CDIC

Credit Unions

✓ Owned and organized by people who agree to pool and share their resources

✓ They form a co-operative business

✓ Services offered include:

✓ Checking accounts

✓ Loans

✓ Investment Products

✓ RRSP’s/RESP’s

✓ GIC’s

✓ Most offer more competitive interest rates

✓ Provide services only to members and their families

✓ To become a member, you must own a share in the company

Insurance Companies

✓ Financial institutions that ensure risk

✓ Generally focus on life, health, property and car insurance

✓ Most people and businesses rely on different types of insurance

✓ People make monthly payments for insurance service

✓ When claims are made, people often pay a deductible and then they are fully covered

✓ Insurance company pools all payments to pay for services

Financial Services

Online Banking

✓ Allows people to do all their banking online

✓ Can do most normal banking activities except for money deposits

✓ Becoming very popular because of ease of banking

✓ Once connected to the bank, you are given a PIN to access account information

✓ Security on these sites is usually exceptional, but can be hacked into

Online Banks

✓ ING Direct is the most popular

✓ Provide same services as chartered banks

✓ Can provide lower interest rates because they have no branches

✓ All services charges are usually less

✓ Disadvantages include:

✓ No ABM’s

✓ Must provide deposits from other ABM’s

✓ Have to mail in deposits

✓ Customer service through 1-800 numbers

Loans

✓ Many different types of loans (car, personal)

✓ Term loan involves borrowing money and paying back at specified time

✓ Interest rates can be fixed or variable

✓ Often pay half the amount of loan in interest

Lines of Credit

✓ Instant access to money between you and your financial institution

✓ Often have money on hand in an account to use at your convenience

✓ When you use money, you have to pay a minimum monthly payment

✓ Interest is added to the total balance at the end of each month

✓ Interest rate is fixed an substantially lower than credit cards

Credit Cards

✓ Highest interest rate of all types of loans

✓ All banks offer credit cards from their institution

✓ Monthly payment is made

✓ Interest is calculated on remaining balance after payment

Direct Deposits

✓ Most employers offer direct deposits for employees

✓ Employees provide a void cheque when they are hired

✓ Money is directly deposited into personal accounts

Money Orders

✓ Form of cheques

✓ A money order is guaranteed by the bank

✓ Must pay a small amount to receive a money order

✓ Better than cheques for most people because of the bank guarantee

✓ Order also protects the payee in case the order is lost or stolen

Overdraft Protection

✓ Overdraft is the bank allowing you to use more money than you have in your account

✓ The amount of overdraft is often based on your financial history

✓ You pay interest on the amount of overdraft you use in your account

✓ Avoids missing bill payments and NSF cheques

Preauthorized Bill Payments

✓ Most companies offer this type of payment

✓ On the due date of the invoice (bill) the amount is automatically deducted from your account

✓ Allows for easier bill payments

✓ People then do not need to worry about making payments

✓ Service is free from the company that is issuing the invoice

✓ The company still sends a snail mail invoice to your home

Safety Deposit Boxes

✓ Fireproof metal boxes are used to hold valuables

✓ Boxes are secured in a room in the financial institution

✓ Financial institutions are not allowed to know what is in the box

✓ Customers are given a key and can access the box when they visit the institution

✓ The institution has another type of key for the box

✓ Both keys are required at the same time to open the box

✓ A rental fee is required to have a box

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