5 Feb

Choosing The Right Checking Account Type in Canada

Checking accounts are a basic necessity of modern life. For most people, however, selecting a bank is a decision made almost entirely of convenience. There’s a mistaken belief that checking accounts are all pretty much the same, so most people get their first account at their parent’s bank. They might stick with this account, or they might switch to a bank that happens to be closer to where they live when they move. Either way, little time is usually spent in shopping and comparing the offerings of different banks.

That’s a mistake that can end up costing you a significant amount of money over the years. Not just in fees, but in terms of rewards program perks, free services and time saved due to conveniences like mobile banking features. You’ll also find that as your personal and financial circumstances change, different accounts will fit your needs better.

What Kinds Of Checking Accounts Are There?

Before going shopping at different banks, it’s helpful to familiarize yourself with the standard checking account types that they will be offering. If you are a complete beginner, we recommend this article from Investopedia.com on the basics of checking accounts first.

1) “Basic” Or “Easy” Checking

Just about every bank will offer an entry-level checking account that is available to just about anyone who can make a small deposit (usually $20 to $50) to get it started. You will only be denied for this if you have a history of bank account closures due to unpaid fees or issuing bounced checks.

These accounts may charge a monthly service or maintenance fee, generally less than $10. This fee is very often waived by a number of common circumstances, however. Most banks will not charge you an account maintenance fee if you receive several hundred dollars in direct deposits each month, maintain a certain minimum balance, use the debit card to make a certain number of purchases, hold a credit card issued by that bank or demonstrate to them that you are currently a college student or on active duty in the military.

2) Free Checking

The word “free” is used a little loosely by banks, but a truly free checking account will not charge a service or maintenance fee. Nor will fees be charged for most basic services such as withdrawals and transfers.

Truly free accounts that don’t require a high minimum monthly balance are pretty rare. Most often, getting an account like this requires some special status — being a senior, on active duty in the military, a full-time student or a minor, for example.

The most common “free” checking accounts that are available to the general public are those that do charge a maintenance fee, but waive that fee with any direct deposit of any amount and have customers do most of their transactions through non-traditional venues. Some of the more popular offerings of this nature are Capital One 360 and GoBank.

3) High-Yield Checking

Standard checking accounts often do pay some amount of interest, but it’s nearly always so trivial that it’s not even worth considering. High interest checking accounts have started to emerge in the past decade or so, however, as a tool for banks to attract more well-off customers.

What can you expect from a high interest checking account? They tend to pay somewhere between 1% to 2.5% in interest, although there are a few rare birds that go as high as 4%. Compare this to the average 0.06% paid by most savings accounts.

Of course, the catch with high-yield checking accounts is that they almost always require a large initial deposit and maintaining an equally high minimum balance each month. On top of this, they frequently require account holders to make a certain minimum amount of debit or online banking transactions each month. They also tend to have balance caps ranging from $15,000 to $25,000.

4) Money Market Accounts

This is basically a hybrid account that adds features of investment to standard checking functions. It’s generally used as an alternative to both savings and standard checking for those who have the resources to maintain a high minimum monthly balance and keep some of their funds out of reach in an investment for a period of months at a time. They’re best for those who have a lot of money they want to leave sitting for the most part, writing only a few checks per month against the account.

Since there are investments involved, these accounts return more interest than standard savings accounts — generally at least double, and up to ten times more is possible. Though this is smaller than the potential interest from other types of investments, money market accounts are insured against loss by the FDIC and the NCUA.

5) Lifeline Checking

These are special checking accounts for very low-income customers that are required by the laws of certain states. They have either no monthly fee regardless of balance, or a fee that is substantially lower than usual (generally under $5 per month). The bank may limit the account holder to writing only 10 or so checks or making a similar amount of withdrawals per month, however. Currently the states of Illinois, Massachusetts, Minnesota, New Jersey, New York, Rhode Island, and Vermont require certain banks to open accounts of this nature to eligible clients.

Note: If you plan on opening a checking account with focus on gaming, we suggest reading our page on casinos and institutions that accept debit cards.

Checking Account Features To Consider

  • Minimum Deposit To Open: This can range from $20 for a lifeline account to $2,000 for a high-yield checking account, but most standard accounts will only ask $50 to $100 to get started.
  • Minimum Monthly Balance: Again there is a great variation here, from just a penny for a lifeline account to $5,000 for a high-yield account. Standard accounts will generally fall in the range of $500 to $1,500, however.
  • Fee Waivers: The bank may waive the minimum deposit requirement and certain other fees for students, veterans, seniors and minors among other groups.
  • Rewards: Rewards can come in the form of a higher APR for meeting certain requirements, cash back for purchases, airline miles for spending and sign-up bonuses, among other options.
  • Rate Of Return: For a basic checking account, expect this to be a non-factor, no more than a tiny fraction of one percent. High-yield accounts will generally have a base rate of 1 to 2% with the possibility of getting up to 3% or 4% by meeting certain monthly minimum requirements.
  • Fees: Banks are required to publish a list of their consumer and business fees. Consult this to find out what they charge for things like non-bank ATM transactions, international purchase fees, excess activity, overdrafts and insufficient funds.
  • Branch Access: It’s increasingly common for “free” accounts to require you to do either most or all of your banking online. Trips to physical locations may cost a substantial fee, or simply not even be possible with some online-only accounts.
  • Compatibility with crypto and gaming in Canada: This point will be of special relevance to our readers. To help you, please read our list of crypto compatible banks. And see our page of Canadian banks that support gaming. Both of these articles are exhaustive.

Though it may seem like a pain, if you take a minute to run the numbers you might be surprised by how much money comparison shopping can save you over the years you are likely to maintain the account!

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