The new Canadian’s glossary of key financial terms

Credit to Author: Guest Author| Date: Thu, 09 Feb 2023 13:30:19 +0000

As a newcomer to Canada, you may be working on improving your English (or French) language skills, but you may not have considered all the vocabulary you will encounter when managing your money. Here is a glossary of key financial terms you will want to know in six categories: basic banking; saving for training, accreditation or post-secondary education or training, mortgages, credit, taxes and investing.

Basic banking

Account balance: The amount of money that is in your bank account.

Automated teller machine (ATM): Sometimes known as an automated banking machine (ABM), it’s a self-service banking machine at which you can withdraw money from your account and complete other basic banking transactions using your bank card and your chosen PIN.

Bank: A for-profit financial institution that offers traditional banking services and a wider range of financial products and usually a big network of branches. In Canada, the Big Five is the nickname given to the five largest banks: Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC) and Toronto Dominion Bank (TD Bank).

Bank card: Also known as a client card, a bank card is provided to you when you open an account. It allows you to access your accounts in your bank branch, at an ATM or store, often in combination with your personal identification number (PIN).

Bank draft: A convenient and secure method for making large payments to someone without having to withdraw cash from your account. May also be referred to as a money order.

Budget: A budget helps you manage your money, usually on a monthly basis. It’s a document where you can list your income, your fixed expenses (such as rent), as well as extra spending money.

Cheques: A cheque is a way of paying for goods or services. It is written in the amount to be paid, and when it’s deposited or cashed by the recipient, the money is transferred from your account into theirs.

Credit union: These financial institutions are cooperatives that provide traditional banking services to their members but are owned and operated by their participants and usually serve a particular geographic region.

Currency: Currency is the form of money that is accepted in a country; Canada’s is the Canadian dollar.

Financial institution: A company, such as a bank, that deals with financial transactions such as deposits, loans and investments.

Foreign exchange rate: The difference at which the currency of one country is converted to the currency of another.

Financial planning: Creating a strategy to help you reach your future financial goals.

Hold: A waiting period after you deposit a cheque to ensure that the cheque has cleared — i.e., money from the issuer’s account has moved over to yours — before you can access the money.

INTERAC: INTERAC allows you to use your bank card to pay for purchases at a direct payment machine or withdraw money from another financial institution’s ATM. Charges may apply.

Interest rate: The rate of return charged by the lender for permitting the borrower to use money for a specified term.

N.S.F. (non-sufficient funds): If you write a cheque for an amount that exceeds the money available in your account, the item is marked “NSF” and a penalty is charged.

Online banking: Online banking allows you to access your bank account via the internet from any computer, conveniently and securely to pay bills, do transfers and check your balance.

Overdraft protection: This is protection in case you become overdrawn on your account.

Personal identification number (PIN): In combination with your bank card, your PIN is a four-digit password you create to access your account at an ATM or point-of-sale transaction.

Statement: A document from your financial institution that lists all transactions for a given account, loan, investment or credit card for a period of time.

Transit number: A four-digit number, found at the beginning of a person’s bank account number, that indicates the branch where your account is held.

Wire payments: A way to transfer money electronically from a bank account into that of another person or business.

Withdrawal: Taking cash out of a bank account from an ATM or at a branch.

Saving for training, accreditation or post-secondary education

Canada Education Savings Grant (CESG): A federal government grant deposited automatically into a registered education savings plan (RESP), equal to 20 per cent on the first $2,500 of the annual RESP contribution to a lifetime maximum grant of $7,200 per child. Additional grants of 10 or 20 per cent on the first $500 of annual contributions may be available for some families based on family income.

Canada Learning Bond: A federal government grant, paid directly into a registered education savings plan (RESP), which is available to families with modest income to help them pay for post-secondary education for their children born after 2003.

Career loan: A loan of funds, usually offered by a charitable organization like Windmill Microlending, to be used to help an immigrant or refugee pay for the costs of training, education, accreditation, certification or professional development in Canada. These funds can normally be accessed without a Canadian credit history. Find out if you are eligible for an affordable career loan here.

Financial savings goals: The money you set aside in savings account or investment to be used for a future purchase or expenditure. Your financial savings goal could range from car or home ownership to spending funds to be used for education, training or professional development courses in Canada.

Registered education savings plan (RESP): This is a long-term investment tool for saving for your children’s post-secondary education. Investments grow tax-free. Applicable government grants will be paid to the RESP.

Mortgages

Amortization period: The number of years it takes to repay the full amount of a home mortgage.

Mortgage: A loan secured with your financial institution to purchase property, typically a home. There are several different types of mortgages.

• A closed mortgage cannot be prepaid, renegotiated or refinanced prior to the expiry of the term. But it’s usually offered at a lower interest rate than an open mortgage, which is more flexible and may be paid off at any time without costs.
• A fixed-rate mortgage means the interest rate is locked in for the full term of the mortgage, giving you security in knowing how much you owe each month for the length of the term. They can be open or closed.
• In a variable rate mortgage, mortgage payments are set for the term, but interest rates may fluctuate during that time, applying more of the payment to either the principal or payment of interest. They can be open or closed.

Home equity: The current market value of your home minus the amount you still owe on your mortgage. For example, if your home is worth $800,000 and the mortgage is $400,000, your equity is $400,000.

Homeowner’s insurance: Insurance that protects you from the financial costs of loss or damage to your home or contents caused by theft, fire and more. It may also provide coverage against other liability claims, such as someone getting hurt on your property.

Principal: The amount of the mortgage owed to the financial institution, not including interest.

Credit

Credit card: A card that allows you to purchase items or services in stores and online and pay for them at a later date. Visa and MasterCard are two of Canada’s biggest credit card companies. A minimum amount must be repaid each month. If you pay the full balance by the due date, no interest is charged. If you don’t pay the full amount, you will be charged interest on the amount owing.

Credit card balance: The amount owing on your credit card.

Credit check: A financial review by a lender or other party, such as a prospective landlord, of your track record for repaying borrowed funds and paying their bills on time.

Credit history: A list of facts gathered from financial institutions, retailers and other lenders, about how you have handled credit in the past. This information forms a profile of your credit-worthiness, called your credit rating. Your credit rating is used to help banks and other companies to decide whether they will allow you to borrow money, and if so, how much.

Credit limit: The amount of credit a financial institution will give a client. Can also be the maximum amount a credit card company allows someone to borrow on one credit card.

Line of credit: A type of credit that offers a person immediate access to part or all of a pre-determined amount of cash upon demand. A line of credit may be either unsecured or secured with personal assets such as bonds, term deposits or equity in a home. A secured line of credit results in a lower rate of interest for the borrower.

Loan: An agreement under which a borrower receives cash from a lender (often a bank) for a predetermined length of time at a given interest rate, generally with a stated repayment schedule.

Microlending: A form of financing that issues smaller loans to individuals who may not otherwise qualify for credit products offered by larger financial institutions. For example, Windmill Microlending, a Canadian charity, provides microloans to immigrants and refugees to help them pay for the costs of accreditation, professional licensing, training, career development courses or relocation to achieve their career goals in Canada.

Microloan: A smaller loan of funds offered to newcomers who might not otherwise qualify for credit products from banks or other financial institutions. For example, Windmill Microlending isn’t a bank. As a charitable organization, it seeks to serve as many skilled immigrants and refugees as possible, regardless of your Canadian credit history.

Term: The period of time for which a loan or mortgage agreement is in effect.

 Taxes

Goods and Services Tax (GST): A federal tax of five per cent charged on the sale of most goods and services in Canada.

Harmonized Sales Tax (HST): A tax on goods and services that reflects both the federal Goods and Services Tax (GST) and provincial sales tax in the provinces of New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island. Other provinces may have provincial sales taxes paid in addition to GST.

Income tax: Money collected from what you earn as income by the federal and provincial governments that is used to fund government programs and services for Canadians.

Income tax return: A form that you must complete and file every year to the Canada Revenue Agency (or Revenu Quebec in Quebec).

Notice of Assessment: A statement from the Canada Revenue Agency sent to Canadians after they file an income tax return.

Investing

Guaranteed Investment Certificate (GIC): A type of investment that guarantees your initial investment and pays a predetermined rate of interest for a specified term.

Investment: Money that a person uses with the expectation of receiving income or profit.

Investment risk: The possibility that a person’s investment returns may not be as high as expected, or that he or she may lose some of the original investment.

Investor profile: An analysis of a person as an investor, including his or her comfort with risk, investment goals and the length of time he or she plans to invest.

 Mutual fund: A portfolio of investments managed by professionals on behalf of a number of investors.

Portfolio: A group of all your investment products.

Registered retirement income fund (RRIF): A tax-deferred investment account into which you may transfer Registered Retirement Savings Plan (RRSP) assets to provide income during retirement.

Registered retirement savings plan (RRSP): An investment account used to save for your retirement in which contributions are tax-deductible and investment earnings are tax-deferred until you take them out.

Tax-deferred: An investment holding within a registered plan that is not subject to tax until withdrawn.

Tax-free savings accounts (TFSA):  A Canadian savings account in which contributions grow tax free. Money withdrawn from it is also tax free.

The New Canadian’s Financial Pathway to Prosperity, an informative guide presented by Canadian charity, Windmill Microlending, shares tools and tips to help you build a financial foundation in Canada while setting you up for long-term prosperity. As a charitable organization, Windmill focuses on supporting immigrants and refugees in establishing their lives and careers in Canada, offering affordable loans to pay for the costs of training, education and professional development. Learn more on Windmill Microlending’s website here.

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