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Everything you need to know about the current account in the Canada

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Interesting facts in articles from the financial community.

What you need to know about the current account. Summary

  • Current account is a deposit account in a financial organization, which allows the holder of plastic cards to deposit or withdraw money from it.
  • Current accounts are quite liquid, which causes many different transactions almost without restrictions, unlike other accounts (for example, savings or investment accounts).
  • Current accounts do not give their holders much interest, even when available, which is a compromise for liquidity increase.
  • Money can be deposited to the account by means of transfers, ATMs or financial organizations themselves.
  • It is necessary to constantly monitor not only the account balance, but also the fees that can be charged for overdraft or the balance reduction to the minimum set by the bank.

Current Account Guide

Current account — what is that?

A current account is a deposit account in a bank or another financial organization that allows its owner to perform various financial transactions with it. These types of accounts, which are also referred to as transactional or pre-demand accounts, are liquid and can be accessed through ordinary checks, via ATMs or via electronic debit.

The current account differs from all others in that it allows you to withdraw large amounts of cash and invest it without a set limit and number of times, while, for example, savings accounts most often have restrictions on such transactions.

General information

Current accounts may include a wide variety of account types, such as joint, student, commercial, and other, offering similar features.

For example, the current commercial account used by the organization is the property of the business account, which means that only the management of the organization and managers have the right to sign transactions on the account, with appropriate authorization and documentation.

Some financial organizations suggest students use current accounts for free until their studies are finished.

A joint current account is for two or more individuals, and it is usually used by married couples so that each can write checks without the consent of the other one.

The maintenance of current accounts is usually not accompanied by a high interest rate (in some cases not at all), and it is these conditions that ensure liquidity. When finding funds in an officially registered financial organization, their safety is guaranteed by the FDIC — Federal Deposit Insurance Corporation (up to $250 thousand per depositor).

If the account holds more than $250,000, then the financial organization offers a free service to “clean up” the account, i.e., the possibility of withdrawing an excess amount that can be invested in any fund bringing interest overnight. At the beginning of the next day (if it is a working day), the money will return back to the account, but with the interest that has "appeared" during the night.

Current accounts and banks

More often than not, financial institutions offer their clients current accounts with minimal fees, but the bulk of them use such accounts as loss leaders.

REFERENCE. The loss leader is the marketing tool by which a financial organization offers its products at a lower cost than the market to attract new customers.

The main aim of many banks is to attract new customers with free or inexpensive current accounts in order to get them interested in better offers in the future, such as mortgages, loans or certificates of deposit.

Alternative lenders, such as fintech companies, offer better loans, so banks will have to revise their strategies soon. To solve this problem, they will, for example, have to increase commissions on current accounts when sales of profitable products drop - the only way they will be able to cover all their losses.

Where the current accounts are used?

The account types under consideration can be opened through bank branches or special official websites of financial institutions, while an ATM, direct deposit or over-the-counter deposit is all you need to deposit funds to the account. To access the money stored in the account, it is also enough to contact the bank, use an ATM or a plastic card (credit or debit) that is connected to the account.

The use of any current account is always convenient thanks to development in the field of electronic banking. After all, users have a possibility to pay bills with the help of transfers, which means that writing and sending paper checks are not required now. Customers, if necessary, can connect automatic payments, according to monthly expenses, or make deposits or make transfers using a mobile app.

It is very important to pay attention to the presence of a possible commission, since such information financial organizations do not like to advertise and put it in small letters.

What is an overdraft and should I pay for it?

When an account holder requires an amount that exceeds the available amount when paying for purchases, the bank covers the difference. This is a credit line offered by a financial entity called overdraft protection.

More often than not, financial institutions do not warn the customer that an additional fee will be charged for each money transaction when the overdraft is used.

So, for example, if you have $100 in your account and make $101, $120 and $147 worth of purchases from the card, the client will be charged an overdraft fee (usually quite hefty), as well as any subsequent transactions made when the balance is negative.

But that's not all. In the example above, where three purchases are made, the bank will not charge a fee for the last transaction only. According to the agreements signed between the bank and the account holder, many financial institutions have the complete right to group transactions in ascending order or vice versa, regardless of the order in which they were carried out in an overdraft.

In other words, the bank groups these transactions in the order of $147, $120 and $101 and will charge daily fees for each transaction in turn. If the overdraft will remain on the account, then, most likely, the commission for the so-called loan will also begin to be deducted additionally.

There is a reason to make large non-cash payments first before small ones, as, for example, when paying off a car loan or mortgage, transaction sizes have large denominations, which means that such transactions will be the most profitable source of income for financial institutions.

REFERENCE. You can avoid paying overdraft fees if you refuse to cover it. To do this, you must select a current account without overdraft fees or keep the money in the tied account.

Some financial organizations do not charge any additional overdraft fees, but only during one year. However, it is better to clarify this issue in advance in the bank personally.

Account Maintenance Fee

Financial institutions receive their income from the interest charged from customers for borrowing money, and service charges which were created to generate income from accounts that were not profitable, or were insufficient to cover the bank's costs.

The standard cost of maintaining a $10 account costs the bank about the same as an account with a $2,000 balance. The difference is that a large account earns enough interest to be an acceptable income for the financial institution, but an account with a $10 balance costs more than it generates in profit. Therefore, financial organizations are forced to charge additional fees, thus compensating the shortage when account holders do not maintain a minimum balance, write a large number of checks, etc.

In some cases it is possible to get rid of some of these fees. This is available for customers of large banks, but if only to ask a specialist about it in advance.

IMPORTANT! If a specialist cancels a fee, it does not mean that there will not be one next time either, as usually such cancellations are one time cancellations.

What do you need to know about direct deposit?

Direct deposit is used to transfer an employer's salary digitally to an employee's bank account, so that the received money is immediately available for use. Such transactions are beneficial to the financial institution, as stable transfers generate a steady income that allows people to lend.

This is why, usually, any account checks are provided completely free of charge (either automatically or after certain settings via the account).

Electronic Transfers

Electronic funds transfer (EFT) allows money to be transferred directly to an account without a receipt, which previously had to be waited for by post, which is a convenient and popular service today.

REFERENCE. Banks usually do not charge additional fees for such transfers.

ATMs

ATMs allow the account holder to access their cash at any time of the day. However, it is important to understand that if you withdraw money from an ATM of another bank, you are likely to be charged a fee, the amount of which is different in each case as it is set by the financial institution itself. But nowadays, more and more ATMs are appearing that do not charge any transaction fees, regardless of which financial institution the account belongs to.

Cashless banking

A debit card is one of the most popular products among those who use a current account. Not only does it make the account easy to use, but the credit card is also portable.

IMPORTANT! Almost all banks provide free debit card protection to avoid any potential theft or fraud if you lose your card or personal details.

Current account interest

When a customer chooses an interest-bearing current account, they should be aware that they will have to pay significant fees, especially if there is no way to maintain a certain minimum balance at all times.

REFERENCE. According to last year's statistics and research, in order to avoid paying additional fees, the account balance must be at least $7123 at all times, an average of 1.27% higher than it was the year before. However, in order to avoid paying additional fees on interest-free current accounts, the card balance must be at least $622.

The above amounts usually refer to the aggregate amount of all customer accounts at a financial institution, i.e. it may include certificates of deposit, savings accounts, etc. When the balance falls below a set minimum, the account holder will have to pay a monthly service charge, on average about $15.

REFERENCE. In modern era of low interest rates, yields average 0.06%.

But it is also worth noting that some banks (of which there are only a few), service current accounts completely free of charge and without any conditions (this information can usually be found on the bank's official website or by visiting the office in person). Also, if the client has developed a long-term and favourable relationship with the bank, they have every right to waive the fees for a current account that earns interest.

Current account and credit rating

Many people know that a current account can affect your credit history and rating in certain situations, but this does not include withdrawals or deposits, cheques, etc. Also, unlike credit cards, closing a current account that is in good standing will not affect your credit rating or reports. Omissions that result in higher cash balances will not show up on the credit report if they are taken care of in a timely manner.

Before offering a customer a current account, many banks retrieve their credit report to see what kind of track record they have in handling money. This factor is especially taken into account when applying for additional financial products such as loans, credits, etc. in addition to opening an account.

If the customer wants to protect their current account from overdraft when applying, then the bank is likely to pick up the loan, because overdraft protection implies a credit line. If the balance cannot be restored in a timely manner after an overdraft, this data will be immediately transferred to the credit bureau, which again has a negative impact on your credit record.

IMPORTANT! If there is no overdraft protection and the customer is unable to restore a positive balance within a designated period, the financial institution is fully entitled to refer his current account to a collection agency, but such data will also be transmitted to the credit bureau.

How to open a current account?

In addition to credit institutions, there are agencies that monitor the client's banking record. And this report card has an official name - "Customer Service Report". Banks and other credit companies always check such a report before approving the opening of a new account.

When applying for a new account, the rating agencies always ask for information about whether the client has returned cheques, whether they are in arrears and how well they have repaid their loan debts.

Repeated cheque returns, unpaid overdraft fees, fraud and current account closures are good enough reasons for a bank to refuse to open an account.

ATTENTION! If a current account is closed due to mismanagement, this information will appear on the bank statement and will be kept for 7 years.

When is a new account refused?

If you are a dishonest account holder, you can easily get blacklisted by banks, so you should always monitor your balance and top it up on time to avoid paying overdraft fees and charges. If this does happen, the sooner the account balance is topped up, the better for the account holder.

If an account is still refused, this does not mean that the situation cannot be rectified; it is usually sufficient to talk to the bank officer and convince him to change the decision.

REFERENCE. To establish a relationship with a bank, you can open a savings account. Once the current one has been opened, it can be linked to a savings account to protect against overdraft on its own.

Even when there are deficiencies in a user's account, it is always possible to change them, and how to do this can be advised by bank experts or other knowledgeable people.