Whether you are a kid or student opening your first bank account or you have been banking for decades, a chequing account is generally a starting point for managing your money.
Chequing accounts come in various shapes and sizes. Some characteristics that are representative of them all include the ease of conducting transactions and the ability to deposit and withdraw cash whenever you want.
This article covers how chequing accounts work, types of chequing accounts, differences between chequing and savings accounts, no-fee chequing accounts, their pros and cons, how to save on chequing account fees, and whether they are safe.
What is a Chequing Account?
A chequing account is a bank account you use to conduct day-to-day transactions that include paying bills, making purchases, transferring funds, depositing cheques, withdrawing cash at an ATM, and receiving your payroll direct deposit.
Chequing accounts are also referred to as transactional or demand accounts. In the U.S., it is spelled as ‘checking’ account.
Chequing accounts are very liquid and because you can just as easily fund or defund the account, banks rarely pay you interest on monies held in the account.
How Do Chequing Accounts Work?
You can open a chequing account at a bank, credit union, and other financial institutions. Most of them come with a monthly account fee, however, the fee may be waived if you keep a minimum balance.
A chequing account provides you with a debit card you can use to withdraw or deposit money at an Automated Banking Machine (ABM) in-branch at a teller and to pay for purchases at a point of sale. They also offer chequing privileges so you can write cheques as a means of payment.
You can ask your employer to deposit your paycheque in your account as well as set up pre-authorized payments or transfers to other bank accounts.
Some online banks do pay interest on your chequing account balance, however, most traditional banks do not. In Canada, the Canada Deposit Insurance Corporation (CDIC) protects deposits in chequing accounts up to $100,000.
Types of Chequing Accounts
There are different types of chequing accounts tailored to meet various needs. Here are some of the most common types of chequing accounts you will encounter in Canada.
Youth Chequing Account
This account is for children under 18 years of age and has no monthly fee.
It usually offers free transactions, has no minimum balance, and may pay a small interest. A parent or guardian maintains control of the account while the child is under a specified age.
Student Chequing Account
This account is for students and also offers free or low-fee transactions and Interac e-Transfers, no minimum balance and no monthly fee.
To open a student account, you must show proof of enrollment in post-secondary or tertiary education.
Seniors Chequing Account
A seniors chequing account offers a discount to customers who are 60 years and older.
This discount may be available on existing accounts at the bank, or in some cases, are specifically customized for only seniors.
Newcomer Chequing Accounts
The big 5 banks offer chequing accounts for newcomers that waive the monthly fees for up to 1 year. These accounts may come with additional perks including a free safety deposit box, access to a premium savings account, and free international money transfers.
After the promotional one year period expires, a monthly fee applies to the account.
No Fee Chequing Accounts
No-fee chequing accounts with unlimited free transactions are offered by online banks including Tangerine, Simplii Financial, and motusbank.
These accounts come with unlimited debits, bill payments, and Interac e-Transfers. Their main downside is that you do not have access to in-person support at a physical branch.
Hybrid Chequing Accounts
The newest introduction to chequing accounts in Canada is the hybrid account that combines savings and chequing account capabilities.
While these accounts do not offer all the features of a traditional chequing account, they do go a long way to make savings accounts more flexible.
For example, EQ Bank Saving Plus Account comes with unlimited free transactions, no monthly fees, free unlimited Interac e-Transfers, and mobile cheques. You do not get a debit card.
One other hybrid account in Canada is the Wealthsimple Cash Account.
Business Chequing Account
This account is designed for businesses – corporations, sole proprietorships, partnerships, non-profit organizations, and more.
A business chequing account is used to manage the day-to-day transactions and cash flow needs of a business enterprise. These accounts come with varying monthly fees depending on the number and types of transactions allowed.
Basic Chequing Account
A basic chequing account refers to the entry-level chequing account offered by a bank. This is the bank account with their lowest fee e.g. Scotiabank Basic Bank Account.
The number of transactions offered by this plan is limited and fees apply when you exceed the limit.
Premium Chequing Accounts
A premium chequing account refers to the most expensive chequing accounts offered by a traditional bank or credit union. It offers an unlimited number of debits, ATM transactions, free access to premium credit cards, free cheques, drafts, safety deposit boxes, and other VIP perks.
An example of a premium chequing account is the Scotiabank Ultimate Package Bank Account.
What is the Difference Between a Chequing and Savings Account?
A chequing account is used to conduct daily transactions, pay bills, transfer funds, make withdrawals, write cheques, receive deposits, and more.
It is basically a place to manage your cash flows without worrying about the restrictions imposed by a savings account. This flexibility attracts a monthly fee.
Chequing accounts also offer overdraft protection which means you can spend more money than you have in your account and avoid the dreaded Non-Sufficient Funds (NSF) fee. The overdraft fee is charged monthly. Overdraft protection is optional.
A savings account is where you can safely keep money and earn interest over time.
Savings accounts are generally free, however, you get dinged on transaction fees if you start using your savings account to conduct everyday transactions. In some cases, your bank limits how many transactions you can conduct using your savings account.
There are different types of savings accounts. A high-interest savings account offers a higher interest rate than a regular savings account. If you are eligible for a tax-free savings account, you can save and earn interest income tax-free.
Savings and chequing accounts can work together to help you reach your financial goals. For example, you can set-up automatic transfers from your chequing account to your savings account after your paycheque is deposited.
Chequing Account Pros and Cons
The benefits of a chequing account include:
- Easy access to your money when you need it using your debit card, ATM, and cheque
- Access to online banking and easy cheque deposits, fund transfers, and bill payments
- Safety through deposit insurance by the CDIC up to a limit
- Some chequing accounts offer budgeting tools and free credit scores
The downsides of a chequing account are:
- Monthly account fees
- No interest is paid on your balance
- Minimum account balances to waive the monthly account fee can be high
Which Banks Offer Free Chequing Accounts in Canada?
You can avoid the $5 to $35 monthly account fee charged by traditional banks by choosing a digital chequing account.
These no-fee chequing accounts have no monthly maintenance fees, no minimum balance requirements, and may offer access to free ATMs, bill payments, electronic fund transfers, interest on your balance, and more.
Examples of online banks with free chequing include Tangerine, Simplii Financial, Alterna, and the Manulife Advantage account.
Many Canadian credit unions also have free chequing account packages. That being said, you should read the small print carefully as I have found that some of them are severely restricted on the number of free transactions included.
Online-only banks have some cons including limited or no access to in-person support and difficulties with depositing physical cash.
Learn more about Canada’s Online Banks here.
How To Save on Chequing Account Fees
Canadians spend more than $200 on average annually on chequing account fees. You can avoid or minimize your bank fees using these strategies:
1. Choose the right chequing account: If you only need to conduct a few transactions every month and have basic banking needs, there’s no need to pay $35 or more for an unlimited premium chequing account.
2. Maintain a minimum balance: Monthly chequing account fees may be waived when you keep a minimum daily closing balance in your account e.g. at least $3,000. Be mindful that if your balance drops below the minimum threshold for just one day, you will need to pay the monthly fee.
3. Bundle services: Banks waive a portion of the monthly fee when you have several services with them, such as a combination of chequing, credit cards, mortgages, and investment accounts.
4. Choose an online bank: Virtual banks offer no-fee banking accounts since they can save on overhead costs by not needing to maintain physical branches. With unlimited free transactions, you can save a fortune over time. You can also check out the credit unions in your area.
5. Avoid overdraft and other convenience fees: Ensure you have enough money in your account before writing a cheque or setting up pre-authorized debits; use free ATMs owned by your bank, and sign up for electronic statements. Use overdraft protection if necessary, and by all means, avoid the $40 to $45 per count NSF fee.
6. Negotiate a fee break from your bank: Perhaps they could make an exception and not charge you a monthly fee, or there may be another account that best suits your needs. Find out how far your bank will go to keep your business.
Are Chequing Accounts Safe?
Most chequing accounts in Canada are offered by CDIC-member institutions and they are considered to be safe. CDIC protects your deposits in chequing accounts up to $100,000 per member institution.
The organization also guarantees your savings accounts and Guaranteed Investment Certificates (GICs) with a term of 5 years or less.
Credit union chequing accounts are guaranteed by the relevant provincial deposit guarantee corporation and funds may be protected up to 100% i.e. without limit and including interest earned.
Common Chequing Account Fees
Depending on the account package you sign up for, the following transactions may incur additional fees in addition to the monthly chequing account fee.
- ATM withdrawals
- Debit card purchases
- Interac e-Transfers
- Cheques and pre-authorized debits
- Money transfers (email and wire)
- Overdraft protection
- NSF fees
- Bank drafts
- Assisted transactions
- Cross-border debits
- Paper statements
- Replacement bank cards
- Stop payments
- Safety deposit boxes
- Account closing and transfer fees
How To Choose a Chequing Account
Before applying to open a chequing account, carefully examine the features you need.
Do you need a no-fee chequing basic account with limited transactions? Are you a newcomer looking for a fee break while you settle down in Canada?
How often will you need to conduct a transaction in-branch or in-person? What’s their customer service like? 24/7?
Does the bank offer access to free ATMs in your area? Are they offering a new bank account promotion that’s worth checking out? What are the fees?
Shop around and compare accounts to find the best value for your money. You can open a bank account online or in-branch by appointment.
Typically, you will need to provide a government-issued ID, contact details, and your social insurance number in order to open your new chequing account.