Everything You Need to Know About Money as a New Immigrant to Canada
Canada has long had a reputation as a multi-cultural country with welcoming immigration policies. But moving internationally to a foreign country, learning a new language, finding a home and adjusting to a new culture can seem like an overwhelming challenge.
One of the main challenges that immigrants will have to face is learning to adapt to an unfamiliar financial landscape. Banking, investments and maximizing savings will carry special import for newcomers who will need to be financially healthy to better manage their lives and truly thrive in a new country. To help better navigate the economic challenges that many immigrants will grapple with, we’ve compiled a comprehensive financial guide that will assist new Canadians better manage all aspects of their personal finances.
In This Article:
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.
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.
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)
Most banks in Canada 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 that offer you more services (with a slightly higher fee).
Because of growing competition from online banks, many of Canada’s traditional banks are offering more products to attract clients. Some things to consider when looking for the best bank in Canada are whether or not it offers multiproduct savings, competitive fees, special discounts for immigrants and/or seniors, high-interest GICs and more.
Canada also has a few branches of major international banks such as the State Bank of India (SBI). 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.
Online Banks/Alternative Financial Companies
In addition to traditional brick-and-mortar banks, over the last decade there has been a growing number of online banks gaining a dedicated following in Canada. Their rising popularity is because, by and large, they offer interest rates for checking and/or savings accounts (as well as GICs and TFSAs and more) that are much, much higher than traditional banks. Many digital banks even offer a relatively new product called a hybrid bank account, which combines the money-saving interest rate of a savings account with the convenience of a checking account. Furthermore, most digital banks don’t charge any fees for daily banking transactions, which can save account holders hundreds of dollars a year.
Of course, perks like high-interest-rate accounts and no fees come with some drawbacks. Most digital banks don’t have physical locations so you can’t go into a branch to speak face-to-face with someone and you have to be comfortable conducting your banking all via a computer. Online banks also don’t generally feature all the offerings that full-service, conventional bank do, so you aren’t likely to get a mortgage, a full suite of accounts or investment products from an online-only bank. But if those drawbacks don’t deter you from the money savings benefits of a digital bank, then it’s worth exploring our pick for Canada’s best online bank.
EQ Bank is relatively new to the Canadian financial landscape, having launched at the start of 2016. But don’t let EQ Bank’s “youth” frighten you off; they’re a trademark of Equitable Bank, which has operated in Canada for over 45 years and is a federally regulated Schedule I Bank. Furthermore, deposits up to $100,000 with EQ Bank are protected by the Canada Deposit Insurance Corporation. EQ Bank offers the Savings Plus Account, a hybrid chequing and savings account with an interest rate of 1.50%*, as well as numerous GICs with interest rates that are consistently some of the highest rates for savings accounts and GICs in the entire country. Additionally, EQ Bank charges no monthly fees, and offers free transactions and inexpensive international money transfers.
*Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.
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.
Use a Secured Credit Card
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.
The Refresh Financial Secured Card is ideal for anyone looking to grow their credit history but who is having trouble getting approved for a Canadian credit card. It’s very easy to qualify for (approval is virtually guaranteed as long as you provide a security deposit) and it works just like a normal credit card so you build up your credit rating every time you make a purchase and make your payments on time.
Use a Credit Building Tool
The importance of a good credit score can not be overstated. A good credit rating can have a major influence on things like finding a job, getting loans, renting an apartment and even owning a home. Luckily there are financial companies that can help you increase your credit score. KOHO has a Credit Building tool that helps you begin building your credit for only $7 a month for 6 months, it’s worth checking out and learning more.
Get a Credit Card
To secure your financial health its especially vital for newcomers to Canada to build a solid credit history as soon as possible. As mentioned above, a good credit score can have a major influence on things like employment and housing.
One of the best and fastest ways to build a high credit score is to get a credit card and use it responsibly by paying off the balance on time every month. Credit cards will also help with things like online shopping, accessing emergency cash if needed and you can even earn rewards or cash back—even without paying an annual fee. Fortunately, Canada has numerous credit cards that are ideal for new immigrants.
Choosing Where to Live
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. The good news is that outside of those two cities, prices are much more reasonable and there are many top places to live in all parts of the country.
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.
If you don’t choose to go with a financial advisor, you might want help in the form of a robo-advisor. Our recommendation is Wealthsimple, (incredibly popular in Canada and has a solid trustworthy reputation). The company uses special algorithms to invest in low-cost ETFs and charges incredibly low management fees. All you need to do is answer a few simple questions and select which investing portfolio you feel most comfortable with and Wealthsimple does the rest.
Send Money Home
Sending money back home is pretty straightforward, but fees, daily limits, and hold times may prove annoying. Make sure you fully understand how much you’ll be paying in fees when you send money internationally.
Our recommendation is to get an HSBC Premier Chequing Account because one of the account’s perks is $0 international wire transfer fees for amounts up to $10,000*.
*Terms and conditions apply.
Get Ready to File Taxes
Normally tax time in Canada for individuals falls on the last day of April (April 30, though tax dates have constantly been in flux this year and possibly into 2021 because of COVID-19). If you have any questions at all it’s best to give the Canadian Revenue Service a call or visit their website because you don’t want to get on the bad side of the taxman. If you are a freelancer or a gig worker (which is a popular option for many Canadians as they search for a full-time job) tax rules are even more complicated and it may be worth at least getting a consultation with a tax accountant. You can also check out this Government of Canada website for tax info specifically for immigrants.
If you decide to tackle your income tax on your own, we recommend TurboTax. The user-friendly software (there is both a free and a paid version) makes doing your own taxes incredibly easy, guiding you every step of the way. The software even features sections that cover things like whether you’re a student, if you own property, and it points out deductions you might be eligible for.
Find the Right Insurance
For home insurance, we recommend consulting InsuranceHotline.com. The online platform gives you the best home insurance quotes from more than 30 Canadian providers in a single search. In terms of car insurance (which you are legally required to get if you drive a car in Canada).
A great resource for life insurance is PolicyMe; the digital brokerage provides a quick and easy way of getting the best possible life insurance policy (and more) online.
Helpful Tools to Use
Managing finances can be overwhelming at the best of times. Here’s a roundup of some of our favourite financial tools.
- KOHO is a pre-paid card that combines with a mobile app to give you insights about your spending. It’s a free, reloadable Mastercard® that earns you 0.5% on all your purchases. Sign up and get a $20 instant cash bonus (once you load your account and make your no minimum first purchase within 30 days) right to your KOHO account with GREEDYRATES referral code.
- Ampli is a handy app that you download on your smartphone to earn cash back on purchases from dozens of online retailers, like Indigo.ca, WestJet, Roots and more.
- PocketSmith is a powerful budgeting app. It helps you manage your money and track your spending, credit card and investment accounts even in different currencies.
While landing in a new country will undoubtedly have its challenges, it will also be the beginning of a wonderful adventure in a new homeland. Getting your finances in order and managing them smartly will provide a solid foundation for a successful new life for you and your family in Canada.