Everything you need to know about money as a new immigrant to Canada
My parents moved to Canada from Hong Kong 40 years ago. Like many new immigrants, they faced a number of challenges when it came to their personal finances. Not only were they struggling to adapt to a foreign cultural environment and language, but they simultaneously had to figure out how to manage their money in this new system.
Immigrants tend to be more sensitive to the possibility of sudden change and fluctuation in life, and, as a child of immigrants, I was naturally taught to be very conscious of my finances.
Money wasn’t tight, but it’s not like we could buy whatever we wanted. And, with less of a support network/safety net in Canada, we had to be very wise about our investments.
After years of watching my parents navigate the Canadian financial landscape, and continuing my financial education as an adult, today I find that I’m more fiscally educated and aware than many Canadians whose families have lived here for generations. Now I’m happy to pay it forward and give you a jumping off point for your financial journey in this amazing country.
Picking a bank
Once you’ve arrived in Canada, one of the first things you’ll want to do is open up a bank account. Canada’s banks are very stable and are unlikely to fail. In addition, any deposits you make up to $100,000 are protected by the Canada Deposit Insurance Corporation, so sleep easy knowing that your money is safe.
There are five major banks in Canada:
- Royal Bank of Canada (RBC)
- Toronto-Dominion Bank (TD)
- Bank of Nova Scotia (Scotiabank)
- Bank of Montreal (BMO)
- Canadian Imperial Bank of Commerce (CIBC)
Without going into too much detail, the only real difference between the major banks is the colour of their logos. They all provide similar services, such as chequing and savings accounts, safety deposit boxes, and credit cards. Interest rates offered on basic savings accounts are usually low, which is why many people also use online banks (see below). Most checking accounts come with a small monthly fee, but one thing to consider looking further into are the premium accounts which offer you more services (with a slightly higher fee).
You can always shop around to see which bank offers you the most value for your needs. But, as a new immigrant, you might be making more visits to the bank than the average Canadian, so convenience and location should be considered. It’s also worth checking with the bank to see if there is an employee who speaks your first language, but this consideration shouldn’t win out over the more important factors mentioned above.
Canada also has a few branches of major international banks such as the State Bank of India (SBI) and the Hongkong and Shanghai Banking Corporation (HSBC). Although these may be banks you’re already familiar with and naturally more inclined to choose, keep in mind that they have limited branches in Canada, and it may not make sense to use them for your daily banking needs.
In addition to brick-and-mortar banks, there are quite a few online banks in Canada. Some people prefer to use them over traditional banks because there’s no need to drive to a branch, wait in a line, or pay fees. Online banks offer basic services that meet the everyday needs of most Canadians, while often offering higher interest rates for savings accounts. Here are three popular online banks in Canada:
Tangerine – Previously known as ING, the online bank was re-branded to Tangerine after Scotiabank acquired the business. Tangerine offers chequing and savings accounts, various investment options, and they also have their own credit card. Tangerine users can withdraw cash from Scotiabank’s automated banking machines (ABMs) without paying a fee.
Simplii – Previously known as PC Financial, Simplii, is now managed by CIBC. Accounts holders get free unlimited Interac e-Transfer transactions and free access to 3,400 CIBC ATMs across Canada.
EQ Bank – EQ Bank is relatively new, having launched at the start of 2016, but they’re owned by Equitable Bank, which has been around for quite some time. The only product they currently offer is the EQ Bank Savings Plus Account which is a hybrid chequing and savings account with an interest rate of 2.3%. That’s currently the highest everyday interest rate available for a savings account in Canada.
Building your credit score
Unfortunately, new immigrants to Canada will not be able to carry credit scores over from their previous countries, and need to rebuild their credit scores from scratch. If you’re unfamiliar with the idea of a credit score, it’s a number between 300-900 that determines how creditworthy you are. The higher your number, the more likely that you’ll be approved for a loan in the future.
A credit score can be gradually built up by using a credit card and paying the monthly balance off consistently. As a new immigrant, the odds are that you may only qualify for a secured credit card immediately following your immigration. These secured cards require a deposit, but since the card issuers report your payments to the credit bureaus, you’ll increase your score over time. Always pay your full balance every month so you don’t have to pay interest charges.
Simply put, real estate in Canada is very expensive. The major cities of Toronto and Vancouver have some of the highest real estate prices in the world, and owning a home in one of those cities may be unattainable for recent immigrants to Canada. The good news is that outside of those two cities, prices are much more reasonable.
Many new immigrants believe that owning a home is the key to financial success, but with prices where they’re at now, that may not be true. Sure, real estate prices have skyrocketed as of late in Canada, but if you stretch out your budget just to own a home, things could get complicated.
When purchasing real estate, you need to look at it beyond the monthly mortgage payments. What good is owning a home if you can’t afford to save for your retirement, pay for your kids’ activities and education, or take vacations? Take the time and run the numbers to ensure that your desire to own a home won’t ruin you financially.
If you do decide to purchase a home, make sure you use a realtor who works in real estate full time and understands your needs. Some new immigrants choose familiarity, opting for a realtor that is a family friend or someone who is offering a lower commission. A home is likely going to be the most expensive purchase of your life, so you should use someone who is truly passionate and knowledgeable about real estate and will dedicate their full attention to you.
Investing your money
After establishing yourself in Canada, you’ll likely start thinking about saving money long term. Fortunately, there are two great savings accounts in Canada with various benefits: the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA).
Both accounts allow you to invest in just about everything, including mutual funds, exchange traded funds, stocks, guaranteed investment certificates, bonds, and much more. The differences in the accounts come down to how taxes are handled and how much you can contribute.
- Contributions reduce taxes
- Taxes deferred (you pay tax when you withdraw)
- Contribution room is based on 18% of your previous year’s income (minus any adjustments)
- Early withdrawals are considered earned income, unless used for the Home Buyer’s Plan or Lifelong Learning Plan.
- Contributions do not reduce taxes
- All gains within your TFSA are tax free (never taxed)
- You can contribute up to $5,500 every year (subject to change)
- Withdrawals are always tax free
Each account has its pros and cons, which we’ll cover in greater detail in a later article. But for now we just wanted to introduce them to you as they’re the most common accounts used for investing.
With these accounts, you can invest in them yourself or you can work with a financial advisor. If you do decide to work with a financial advisor, it’s important to select someone who has valid credentials. Quite often new immigrants tend to choose a financial advisor who speaks their native language. There’s nothing wrong with this, but you should do some research on the person who will be managing your money. First and foremost they should be experienced investors, with the comfort of a common language and cultural background being of secondary concern.
One other thing to note about financial advisors: never work with someone, regardless of his or her credentials, who promises you something that sounds too good to be true. If they’re telling you that they can earn you 10% returns with no risks, they’re likely lying or operating some kind of ponzi scheme. Canada has very low levels of corruption and fraud compared to most other countries, but it still exists to some degree, and unfortunately it’s not unheard of for immigrants to be targets of exploitative practices. You’ve worked hard for your money, so be careful with whom you entrust it.
Sending money home
Sending money back home is pretty straightforward, but fees, daily limits, and hold times may prove annoying. Here are the easiest ways to make international money transfers:
Wire transfers – Every bank will be able to do an international money transfer for you, but there are usually conditions. For example, you will need an account with the bank and you’ll likely have to pay a one-time fee. Keep in mind that you also need to pay the exchange rate set by the bank, which isn’t always the best.
Knightsbridgefx.com – This Canada-based company undercuts banks by offering a lower exchange rate. They also don’t charge a one-time fee. Knightsbridge Foreign Exchange is able to offer better rates since everything is done online, rather than in a brick-and-mortar bank. The transfers are safe, since transfers are executed through Canadian financial institutions.
TransferWise – TransferWise is another online option that allows you to send international money transfers online. What makes them unique is that you can open a borderless account in 27 countries which will allow you to make almost instant transfers between the supported currencies.
I know the above may seem foreign and overwhelming, but trust me, things get easier. And if I had to choose one message for you to take away from this article it would be: try to learn from people outside of your community.
At the start of their new life in Canada, my parents relied heavily on family and local Cantonese-speaking peers for financial advice. Luckily my parents both had customer service jobs, so they were forced to practice English. This in turn made dealing with many day-to-day financial tasks much easier. On the other hand, an uncle of mine still barely speaks any English despite the fact that he’s been in the country for 20 years. He tends to stick within his community and relies heavily on his children to translate whenever he needs to interact with someone who doesn’t speak his language.
It’s easy for us to stick to what we know, but getting outside of our comfort zone can go a long way. Given all the online tools and information available today, new immigrants have an opportunity to learn about personal finance from those who have been in Canada for a longer amount of time. And turning to the internet allows you to learn and explore at your own pace.
You’ve chosen Canada as your new home, and I personally want to welcome you. I’ve witnessed firsthand how immigrants can thrive here, and I know that you can too.