Chapter 5 - Banking Services & Managing your Money Flashcards
What is money management?
Short-term decisions about income and expenses to maintain liquidity and achieve ROI (Return on Investment)
What is liquidity?
The ability to access cash or credit for short-term or unexpected expenses.
What are the two sources of liquidity?
Savings (positive net cash flow) and credit (credit cards, lines of credit).
What are depository institutions?
Institutions that accept deposits and provide loans, earning income from interest.
What are Schedule 1, Schedule 2, and Schedule 3 banks?
Schedule 1: Canadian-owned banks authorized to accept deposits.
Schedule 2: Foreign-owned banks with subsidiaries in Canada.
Schedule 3: Foreign banks operating with restricted authority.
What are Chartered Depositary Instiutions?
Chartered banks are financial institutions that accept deposits in chequing and savings accounts and use the funds to provide business and personal loans.
And Eligible deposits are insured up to 100k
What are Trust and Loan Companies?
Depository Institution
Trust and loan companies are financial institutions that, in addition to providing services similar to a bank, can provide financial planning services, such as administering estates and acting as trustee in the administration of trust accounts.
What are non-depository institutions?
Financial institutions that provide financial services but do not offer federally insured deposit accounts (e.g., mortgage companies, investment dealers).
What are financial conglomerates?
Large institutions offering multiple financial services under one brand (e.g., RBC provides banking, insurance, and investment services).
What are key considerations when selecting a chequing account?
Minimum balance requirements, number of free transactions, and interest rates.
What are Cheques?
Written transaction request sent to banks. Honoured by reducing a figure in one account and increasing it by the same figure in another account. They’re “old” after 6 months, but may still be honoured.
What is a debit card?
A card that allows direct purchases by withdrawing funds from a chequing account.
What is Interac e-Transfer?
A service for sending and receiving money between banks securely.
What are automated banking machines (ABMs), and what are the fees associated?
ABMs (ATMs) allow cash withdrawals and deposits, but using another bank’s ABM may result in fees from both banks.
What is a certified cheque?
A cheque guaranteed by the bank, ensuring immediate cashing by the payee.
What is a money order or bank draft?
Money orders and drafts are products that direct your bank to pay a specified amount to the person named on them. You pay for a money order or draft at the time of purchase. They are similar to certified cheques in that the bank guarantees the amount indicated on the money order or draft. The difference is that money orders and drafts tend to be used for smaller amounts of money.
How They Work:
The buyer pays the full amount upfront to the issuing institution.
The institution then issues a guaranteed payment document to the payee.
The payee deposits or cashes the money order or bank draft like a cheque.
What is a traveler’s cheque?
A pre-written cheque issued by a financial institution, often used for travel
Written on behalf of an individual, charged to a sponsor.
They are purchased from banks or credit unions and are protected by the issuing bank.
What factors should be considered when choosing a bank?
Convenience, fees, ABM accessibility, and available financial services.
Why do online banks offer higher interest rates?
Lower overhead costs allow them to pass savings to customers.
What are common savings alternatives?
Savings accounts, TFSAs, term deposits, GICs, and money market funds.
What is the optimal allocation of Short Term Investments?
- Anticipate bills, ensure you have funds for all expenses
- Estimate additional funds for the near future, invest in a tool with high-liquidity. (ex. HISE)
- Use the remaining funds for higher-return, higher commitment tools. (ex. GICs)
