Comparing Chequing Accounts in Canada

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A balance in your chequing account is the substitute for cash. A chequing account is also called a demand account or a transactional account. Chequing accounts are deposit accounts kept at financial institutions. Chequing account balance is the most liquid asset because they provide unhindered access to your funds. It is more liquid than cash, as money in a chequing account is more convenient to spend than cash. We do talk about liquidity as ease to convert some property into cash but in this context by cash, we mean money in our chequing account. Except for banks feeding their ATM machines no law-abiding person or firm normally deals with large amounts of cash.

"Chequing Account" is a historical name that emphasizes the convenience and safety of leaving your funds at a financial institution while accessing those funds anywhere by simply writing a cheque. Today the term "demand account," emphasizing the financial institution's obligation to provide access to your money under any circumstances, or the name "transactional account," emphasizing the more effortless transfer of your money than any other account, might be more appropriate.

Demand accounts allow you to access your money by writing a cheque, using a debit card, electronic funds transfer, wire transfer, ATM, telephone banking, and in a branch. In contrast, a financial institution can limit access to your savings account and investment accounts.

Historically people have thought of money as cash. But cash has some severe limitations: cash can be lost or stolen, and its presence can threaten your safety. Moreover, one can only exchange cash when both parties in a transaction are physically present. Unless you get a receipt, the exchange of cash is deniable. All these drawbacks result in extensive uses of cash being rare unless for illegal activities or by tourists.

Just as it is easy to send money from your chequing account, it is easy to receive money in your chequing account. The information you need to share to receive money in your chequing account includes transit number, financial institution number and chequing account number.

Now that you know all about chequing accounts let us look at specific chequing accounts offered by some of the best Canadian banks.

TD is the largest Canadian bank by assets and an accessible bank in Canada with around 1,100 branches and 3,440 ATMs. It is headquartered in Toronto and also operates in the United States. In the following table, we compare various chequing accounts offered by TD:

With TD, you can apply and get overdraft protection. You choose to pay $5 monthly or $5 each time you overdraw your account. In addition, you would be charged 21% per annum in interest on overdrawn funds.

As expected, the more features an account has, the higher its monthly fee and the minimum required for waiving the monthly fee. One has to be cognizant of which features they need to use and choose the cheapest account offering those features.

RBC is the largest Canadian bank by market capitalization and an accessible bank with over 1,300 branches in Canada, the US, and the Caribbean.

RBC has implemented a system in which by using RBC services (which includes spending money through an RBC debit or credit card), you earn RBC points which can be used to lower your account fee.

At the time of writing, RBC offers a free AirPods Pro for opening and using their VIP or signature accounts. It also offers $100 for its Advantage account.

BMO is the fourth largest Canadian bank by assets and market capitalization. It is accessible with close to 900 branches and 3300 ATMs in Canada. It also has more than 500 branches and 1500 ATMs in the US.

During May and June 2022, BMO is offering a cash bonus and family bundle for opening a new chequing account.

Bank of Nova Scotia (Scotiabank)

Scotiabank is the third-largest Canadian bank by assets and the most international amongst Canadian banks. Scotiabank has 950 Canadian branches and 1,300 branches in more than 50 other countries. Scotiabank is headquartered in Toronto.

CIBC is the fifth largest Canadian bank accessible via more than 1000 branches and 3000 ATMs.

HSBC (Hongkong and Shanghai Banking Corporation) is a well-known, very large global financial institution with headquarters in London but whose roots and the most significant market are in east Asia. It has a subsidiary in Canada called HSBC Bank Canada.

Canada Deposit Insurance Corporation, commonly known as CDIC, is the bank insurer in Canada. CDIC is a Crown corporation in Canada. Crown corporations are businesses with a public policy objective. They are corporations belonging to the crown (the monarch, as the personification of Canada, owns all state property). Parliament established CDIC in 1967. CDIC insures every depositor’s money in chequing and savings accounts and guaranteed investment certificates (GICs) up to $100k.

Thus in each financial institution who is a member of CDIC, the CDIC insures up to $100k of deposits held in your name, up to $100k of deposits held jointly, up to $100k of deposits held in your registered retirement savings plan (RRSP), as well as up to $100k of deposits held in your tax-free savings account (TFSA), and up to $100k of your deposits held in other categories. Note that the CDIC limit applies to each type of account separately.

Financial institutions regulated by federal authorities become members of CDIC; they pay premiums to CDIC proportional to the value of the insured deposits they are keeping. So retail depositors are safe even in the worst bank failure (where the bank’s loss is greater than the total equity of its stockholders and bondholders). Owners of massive deposits and the CDIC would absorb possible losses.

It took a long time for chequing accounts to replace cash. People had to worry about the bank’s ability to honour its contractual obligations in the past. There have been many occasions of bank runs. In a bank run, a group of bank customers wrongly or rightly consider the bank unsafe and withdraw their money from their bank accounts. This sudden reduction in deposits held by a bank increases the probability of failure by that bank. Increased possibility of failure encourages more withdrawals which might in turn cause the bank to default on its obligations.

There are two types of failure possible for a bank. One is a liquidity crisis, and the other is insolvency. A liquidity crisis occurs when the institution has more assets than liabilities. Yet, the financial institution’s inability to convert its illiquid assets into liquid ones causes it to default on its obligations. A solvency crisis occurs when the bank has made loss-making activities or its loan portfolio is not performing. In such situations, the value of the bank’s assets might fall below its obligations. Currently, the government has implemented solutions for both of these problems. Suppose a bank runs into a liquidity issue. It can turn to the Bank of Canada (central bank), pledge its assets as collateral, and access liquidity. The situation would become far more difficult if a bank becomes insolvent. In such a situation, the bank’s stockholders lose their equity in the first step. But if the problem is deep, some of the bank’s debt holders would also need to accept a haircut, i.e., they need to take a repayment less than their contractual entitlement. The prominent bank debt holders are depositors who have savings, chequing, or investment accounts with the bank.

But in most cases, the bank has raised some money by selling bonds in capital markets. Depositors’ debt has precedence over that of bondholders. Thus even when the bank has negative assets, the bondholders have to absorb the loss, and depositors are safe. In the most extreme scenario, there are insufficient bank assets to meet the bank’s obligations to depositors. Then people (retail depositors) can turn to the bank’s insurer and demand their money.

To open an account with a depository institution, the institution must verify your identity. After choosing which bank's services you want to use, you must go to one of the branches of your bank in person and bring two pieces of identification. Your primary ID should be issued by a government and bear your photo. Often, bank customers use their driving license, Canadian passport, Canadian Permanent resident card, Canadian Certificate of Indian Status or Canadian Citizenship Card, or Canadian firearms license as primary identification. The second piece of identification can be a credit card, a study permit, or a work permit.

In-person identification works well for large banks, like Royal Bank of Canada (RBC) with around 1,300 branches, Toronto-Dominion (TD) bank with about 1,100 branches, Bank of Nova Scotia (Scotiabank) with over 900 branches in Canada, Bank of Montreal with about 900 branches, or Canadian Imperial Bank of Commerce (CIBC) with approximately 1100 branches. What if you wanted to open an account with a small bank like Peoples Trust Company with a handful of branches? The closest branch might be 1000 kilometres away? Financial institutions do trust one another, so to open an account with one institution, it might suffice for that institution to know that another institution verified your identity. So small faraway banks can ensure your identity verification by receiving a voided personalized cheque. Recent advances in artificial intelligence (AI) have allowed banks to perform online identity verification. Identity verification might be done by taking a photo of your ID and performing some requested tasks in front of your cellphone's camera. Matching your live picture with a photo ID is generally supplemented by pulling your credit report and asking some questions about your financial history. If you do not have a credit history or if there is any mismatch between your answers and the information on your file, the bank will ask you to visit a branch for identity verification.

Opening a bank account in person will likely take you more than an hour, while electronically opening a bank account will be faster and more convenient. The process of identity verification occurs once for each bank. Suppose you have an account with a bank and would like to open another bank account with the same bank. In that case, it can most likely be done in one minute via internet banking or in 5 minutes over the phone. After you open your account, you will receive instructions on setting up internet banking. Internet banking allows you to bank anytime and anywhere. And it is good for your bank as well. Your bank incurs a considerable cost for setting up and maintaining internet banking services. But when the service is up and running, the cost of any additional user is negligible. The same goes for automated telephone banking and mobile banking. Thus some banks differentiate between self-service and full-service transactions and charge more for full-service transactions.

After you open your chequing account, anyone who wants to pay you, Canada Revenue Agency (CRA), your employer, or anyone else, can use your bank account information to direct deposit into your chequing account. Electronic transfer of money between accounts in different financial institutions has been a weak spot in Canada’s financial system. Interac corporation provided a partial solution with its service, which was initially called Interac Email Money Transfer and is now called Interac e-Transfer. E-Transfer allows anyone to send you (a limited amount of) money by knowing your email address or cell phone number; it can be considered an electronic cheque. One can use cash and paper cheques to deposit money into their account either inside a branch or via an Automated Teller Machine (ATM).

After opening your chequing account, you would get a debit card and ask for a chequebook (The ease of electronic transactions has caused a large decline in the use of cheques.). Each bank typically offers a few chequing accounts, each with specific features. Typically your account would have a monthly fee that the bank waives or rebates if you maintain a minimum balance. For this fee, you would get several free transactions each month. Each transaction over this number would incur a transaction fee. These transactions include deposits and withdrawals via cheques, ATMs, electronic transfers, and debit purchases. But if you use an ATM belonging to another bank, you would incur an extra fee on top of using one of your free transactions. This fee is higher for out-of-country withdrawals.

Overdraft protection is one of the common features of a chequing account. With overdraft protection in place, you can withdraw more money from your chequing account than deposited in it. The difference between what you have withdrawn and what you had in your account is a loan. Overdraft protection is a personal line of credit, and banks would ensure you have a good credit score before offering it. You would pay a fee each time you use this feature and pay interest on the overdrawn money. Overdraft protection is a good feature as it prevents your cheques from bouncing or your purchase not going through. But you should strive to limit your withdrawals to your available funds. The cost of borrowing via overdraft protection is comparable to borrowing money from a credit card and is among the most expensive borrowing options in the Canadian banking system.

Mobile cheque deposit is another convenient feature that allows you to deposit cheques into your account using your mobile banking app. Note that whether you deposit a cheque in the branch, through an ATM, or via your bank’s mobile app, it takes time for the cheque to clear. This time varies from a few days in the case of domestic cheques to a month for some foreign cheques. Cheques in a foreign currency might also incur currency exchange fees when the amount is converted to CAD. However, having a U.S. dollar chequing account can allow you to avoid having to convert USD to CAD. You do not have access to the money deposited via the cheque until it clears. Unless the cheque is issued by a person or institution that you know and fully trust, the cheque might not necessarily clear. So be wary of anyone trying to convince you to get your money in exchange for their cheque.