How To Choose The Best Bank Account

There are two main types of bank accounts to choose from when making the right decision for you. One is chequing, the other is savings. First let’s briefly define each account.

Chequing Account

A chequing account is a way to facilitate regular financial transactions. Whether they be deposits such as cash, checks, direct deposit from your employer, or drafts or withdrawals including transfers between accounts, buying groceries, or withdrawing money from an ATM (Automated Teller Machine). To be able to buy everyday items or withdraw cash from an ATM you will need a debit card. This is a plastic card for which you would set a PIN (Personal Identification Number) allowing for payment at retailers or completing transactions at an ATM. You can open a chequing account at a financial institution such as a bank or credit union. The drawback with chequing accounts is they don’t offer any way to earn interest on your money.

Savings Account

A savings account is the answer as to how you can earn interest on idle funds. As of the time of writing (February 2023) interest rates range from 0.5% to 2.7% based on the type of savings account but its best to confirm with the financial institution you deal with. These bank accounts are not meant for numerous transactions in a month. Depending on the specific account you may be allowed one or two a month, any more than that there will likely be a fee per transaction.

So now we have a working definition of each account let’s decide which is best for you! Chequing or savings is a relatively easy question to answer. If you need the funds to support your daily living chequing is best. If you do not need the funds for any particular reason within the next three to six months, savings is the better option.

How To Choose a Savings Account

Different institutions will pay different rates so shop around to get an understanding of what is available. It’s important to define when you intend on accessing the funds you are saving. Over the last few years institutions began providing accounts with different rates based on how long you save the money for. The longer you save, the higher the rate.

As mentioned before, typically savings accounts will offer one or two debit transactions per month. Beyond that there will be a fee every time you make a debit transaction. With the pervasiveness of digital banking its common for banks and credit unions to offer higher interest rates for savings accounts purely meant for online transactions. This means you can do transfers online, check your balance, withdraw cash from the ATM, etc. but you would not be able to do any of these transactions through a live person. If you’re willing to forgo some interest for the comfort of being able to deal with an in-person teller then the online savings account may not be for you.

Another point to consider is how much you will be saving. Some accounts have a minimum balance before they start paying interest. It would be unfortunate if you put your hard earned money away to grow but didn’t receive any interest because you were under the required minimum. Be sure to confirm with your institution how much needs to be in the account in order to boost your savings.

Questions to ask:

    1. What are the interest rates on each account?
    2. If I save for a longer period of time, will I earn a higher rate?
    3. How many debit transactions can I do a month?
    4. What is the the minimum balance to earn interest?
    5. Are the interest rates tiered, meaning if I put more in the account do I earn more interest?

    How To Choose a Chequing Account

    When it comes to selecting a chequing account that is best for you, there are similarities and difference to going after a savings plan. Both will come with fee and balance considerations however there are differences in what to keep in mind. Fees with chequing accounts can arise from going over your maximum debit transactions per month but also for things like going into overdraft or sending electronic transfers.

    Allowable debit transactions will vary from 12 transactions per month to unlimited so it’s important to understand how often  you will use your debit card. Balance minimums can waive monthly charges however that minimum must be maintained for the entire month. Monthly fees will range from $3.00 – $30.00 per month so choose wisely.

    Financial institutions typically offer specialized accounts for seniors, students, or youths. These accounts will offer zero or rebated charges based on the category. Here’s where things get interesting and saving and chequing plans really diverge. 

    The more premium chequings come with complementary services including free cheques or drafts, annual fee waivers on select credit cards, a free small safety deposit box depending on availability, and affiliated bank rewards. Let’s break this down a little bit.

    A cheque is essentially a piece of paper where the owner would write the amount owed, the date, and the payee’s name on it and give it to the person they would like to pay. Cheques are commonly used to pay rent. Drafts are very similar except you would have to go into the bank, provide the teller with the same info, and they would have it printed on a piece of paper.  If you plan on making numerous payments with cheques then a book of cheques is worth it. If you plan on making them only a few times a year then drafts are probably the better option unless you get free cheques with your account.

    Some banks offer free credit cards on one of their mid to top tier credit cards for as long as the person has the chequing account. A safety deposit box is a secure storage box where you can store valuable items such as sensitive documents, precious metals, or physical cash. The boxes are always in the bank’s vault and will come with a key for access. Availability is sporadic so you may need to go on a waiting list.

    Bank rewards can come as either their own reward system or through an affiliated partner. If ABC bank has their own reward system you can collect ABC points on all your debit card purchases and use for travel, merchandise, or paying down your credit card. Affiliated rewards include gas station chains, restaurants, or movie theaters.

    ATM access is important if you plan on withdrawing cash fairly often. Withdrawing cash from an ATM unassociated with your institution can cause steep fees. The financial provider’s ATM network can work in your favour if you travel a lot. Certain banks have an established presence in parts of the world (Latin America, Asia, Europe, Eastern United States). Your bank may also be a member of the Global ATM Alliance which means when you’re travelling outside of Canada, you can use the ATMs of the international banks in the Alliance, and you’ll bypass additional fees. Currently there are over 44,000 eligible machines covering more than 40 countries.

    Lastly but perhaps most importantly, always ask if there are sign up bonuses for new account holders. It is common for institutions to offer introductory cash bonuses in the ballpark of $300 to $500, although some conditions may apply. But it never hurts to ask!

    Questions To Ask

    1. Are there specialized accounts relevant to me? (student, youth, senior, new to Canada)
    2. How many transactions do I get per month?
    3. What is the minimum balance to waive fees?
    4. Do I get any other fee waivers with this account? (credit card, cheques, safety deposit box)
    5. Are there any rewards  points when I use my debit card?
    6. Are there any welcome bonus offers?

    We hope this gave you some valuable insight as to how you can choose the best bank account for yourself. The answer to whether chequing or savings is better is quite simple. If you need the funds to support living expenses, chequing is the way to go. When sitting in front of a banking advisor, remember to ask the important questions. Of course, it always helps to do a little research on your own beforehand so you go to the meeting prepared. You are now well equipped to open the most fundamental account a person needs!

    Now that you’re comfortable with a bank account you should consider investing for yourself. Have a look at one of the most flexible investment accounts there is, known as a Tax Free Savings Account.