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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