Glossary of Canadian Banking Terms | HSBC Canada

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Glossary of Canadian Banking Terms

Account

An arrangement at a bank for financial transactions, including making deposits and withdrawals.

Amortization

Amortization is the time required to repay a loan (or other liability) in gradual installments.

Annual Percentage Rate (APR)

The cost of borrowing money over one year, including interest charges.

Annual Fee

An amount charged for something once a year. For instance, many credit cards have an annual fee that you must pay once a year to keep a card active.

Automated Teller Machine (ATM)

A self-service machine that allows you to perform basic banking activities. To use an ATM, you need an ATM card or debit card and a PIN (Personal Identification Number). ATMs are also known as an Automated Banking Machines (ABM).

Bounced Cheque or Returned Cheque

A cheque that a bank does not pay, for instance because there is not enough money in your account to cover the amount issued on the cheque. These are also called non-sufficient funds (NSF) cheques. Most banks and retail outlets charge a fee to cover the administration costs associated with processing NSF cheques.

Cheque

A written order tied to your chequing account that you fill out with a specified amount of money to pay a person or business. The cheque, once signed, directs your bank to pay the money out of your account.

Chequing Account

An account which allows you to write cheques against deposited funds, or against a loan linked to the account, such as a line of credit.

Credit

Money loaned to an individual or organization. Credit can come in many forms including loans, mortgages, and credit cards.

Credit Card

A card that is used to make purchases or borrow money. Credit cards can be issued by financial institutions, retail stores, and other businesses and authorize you to repeatedly borrow money or buy products and services on credit, up to a certain limit. A minimum payment must be made on the balance each month. Interest is charged on any balance not paid each month.

Credit Card Limit

The maximum amount you can purchase or available credit on your credit card.

Credit History

Is a track record of your debt payments and whether they were paid by the due date. Your credit history helps lenders determine your ability to repay debts on time and may affect what your interest rate will be if you apply for a loan.

Credit Limit

The maximum amount of money you can spend using a line of credit without paying the full or part of the balance owed. For example, if your maximum credit card limit is $2,500, you cannot spend more than $2,500 without paying off the balance in full or part.

Credit Rating

A score based on your credit history. It is decided based on your income, your ability to repay a loan, and other factors.

Debit Card

A card assigned by your financial institution that is linked to your bank account. It can be used to make cash withdrawals from an Automated Teller Machine (ATM) or pay for items at retails outlets instead of using cash. Once you approve the transaction by entering your PIN, the amount is electronically deducted from your account and paid to the merchant or retailer.

Debt

The money that you owe to a lender (for example a bank) when you borrow money.

Deposit

Money or cheques put into an account at your bank or other financial institution.

Direct Debit

A service that can be set up on your bank account to automatically make regular payments such as mortgage payments, insurance premiums, or credit card payments.

Direct Deposit

A service that can be set up on your bank account that allows money to be electronically deposited to the account. For example, a regular paycheque from your employer can be directly deposited to your bank account.

Down Payment

The amount of the purchase price of a home, a car, or other large item that is paid by you, using your money. The rest of the money is usually borrowed from a financial institution in the form of a mortgage or loan.

Electronic Funds Transfer (EFT)

A fast, secure way to electronically transfer funds. EFTs can be performed using computers, ATMs, over the phone or by wire transfers.

Financial Plan

A written report of your financial goals, resources, assets and debts, and the investments.

Fixed Rate Loan or Mortgage

A mortgage or other type of loan with an unchanging interest rate. The fixed rate is charged for a specific period of time.

Guaranteed Investment Certificate (GIC)

A deposit investment sold by financial institutions where the principal, or how much you deposit, is guaranteed back to you. A GIC generally pays you a higher rate of return than other investments, but you must keep it until the end of a pre-set maturity date. GICs are often bought as part of retirement plans because they provide a low-risk, fixed rate of return. See also "Term Deposit".

Income Tax

The amount of money you pay to the government each year, based on your income.

Interest Rate

When you are borrowing money, interest rate refers to the price lenders charge you when you use their money for a specified period of time. The rate charged is usually expressed as a percentage of the total amount borrowed.

When you are depositing money, interest rate refers to the amount of money a deposit will earn over the length of time it is deposited. The rate earned is usually expressed as a percentage of the total amount deposited.

Joint Account

A bank account with two or more account holders. For instance, a husband and wife may have a joint account.

Liability

A legal responsibility you have for something. For instance, a debt you owe is considered a liability. Also, if you damage property or injure a person, you may have to take financial responsibility.

Line of Credit (LOC)

An amount of money a bank is willing to lend you to use whenever you need it. How you use the money is up to you. Interest is paid on the amount you use.

Loan

An amount of money you borrow from a financial institution. You are charged interest on the amount you borrow. The amount borrowed and interest owed must be paid back in a fixed amount of time.

Maturity Date

The date by which you are expected to pay off a loan or mortgage. Also, the date on which something becomes due. For instance, if you invest in a term deposit, the day you are allowed to retrieve your money is called the maturity date.

Minimum Payment

The smallest amount that must be paid on a debt, such as a loan or credit card balance.

Minimum Opening Deposit

The minimum amount of money needed to open and maintain an account. Accounts that fall below the minimum balance may be subject to service charges.

Mortgage

A home loan secured against real estate that you pay back with interest in a predetermined series of payments.

Mortgage or Loan Amortization

The number of years you have to pay back a mortgage or loan in full.

Mutual Fund

A mutual fund is an investment that allows a group of people to put their money together for investment purposes. The money (also called the fund's assets) is held in trust by an investment company and invested into a combination of stocks, bonds or other securities. The unit price of a mutual fund will go up and down, depending upon the performance of the securities held by the fund.

Net Worth

The total amount of your assets, including the money in your accounts, your investments, and personal property such as home, car or business, minus any outstanding debts you have.

Personal Internet Banking (PIB) or Online Banking

A convenient and secure way of performing banking transactions using your financial institution's website. Online banking allows you to access your accounts at any time and from anywhere you have access to the Internet.

Overdraft protection

You can pay a small monthly fee to ensure your financial institution covers your account in case you accidentally withdraw more money from your account than you have available.

Personal Identification Number (PIN)

A private and confidential number that you create to access your account. A PIN is required to verify your identity, and to approve account transactions before you can make ATM withdrawals or debit card purchases. PINs are also used with credit cards embedded with electronic chips.

Pre-authorized Payment

Amounts that you allow to be deducted from your account on a regular basis. Many people use pre-authorized payments to pay things like telephone and cable bills.

Prime Lending Rate

The floating annual rate of interest established and recorded by the lender as such from time to time as a reference for determining rates of interest the lender will charge on loans, denominated in Canadian Dollars in Canada.

Principal

The amount of money you borrow from a financial institution (for example a mortgage or loan), or you deposit in an account, such as a Guaranteed Investment Certificate (GIC).

Registered Education Savings Plan (RESP)

A government registered savings or investment account that allows money to be set aside for your child's post-secondary education (such as university or college). Investment income and capital gains earned within RESPs are not subject to tax until money is withdrawn, at the student's typically lower tax rate.

Registered Retirement Savings Plan (RRSP)

An RRSP is a government registered savings plan designed to help you save and invest money for your retirement. As long as money remains in your RRSP account, any growth remains tax-deferred.

Renewal

At the end of your loan term you may need to extend the length of your loan. If the loan is extended, the loan is "carried over" or renewed. Similarly, if you have a term deposit, the deposit may be "carried over" or renewed at maturity.

Savings Account

A bank account that earns interest. Withdrawals and deposits can be made at any time.

Secured Credit Card

A credit card for which the cardholder is required to provide a cash deposit. Secured credit cards can be useful to establish a credit rating if you do not have a credit history in Canada.

Social Insurance Number (SIN)

An identification number provided by the government of Canada to every resident who earns income and pays taxes.

Stop Payment

You can request the bank to not honour (stop) the payment of a written cheque from your account. The stop payment request must be given before the cheque is cashed.

Tax Deferred

Earnings on investments in registered accounts (such as your RRSP or RESP) in the form of interest, dividends or capital gains are not taxable until the funds are withdrawn.

Tax-Free Savings Account (TFSA)

A type of savings account that grows tax-free. You can save or invest up to a maximum of $5,000 per person, per year in TFSA without paying tax on the interest the money earns in the account. Withdrawals from this type of account are also tax-free.

Telephone Banking

Service provided by your financial institution allowing you to perform transactions over the telephone. Most telephone banking requires authentication (you have to prove who you are) and instructions are provided by a customer service representative or via an interactive voice response (IVR) system.

Telegraphic Wire Transfer

An electronic method of transferring money to another financial institution electronically.

Term

A fixed period of time. When borrowing money, it is the period of time over which you agree to pay back a loan or mortgage. When depositing money, it is the length of time over which a financial institution keeps your money.

Term Deposits

Secure investments that you purchase for a fixed period of time. Term deposits generally offer a higher rate of interest than a simple savings account and are available in a variety of term lengths, currencies, and several redemption options.

Unsecured Credit Card

A credit card which does not require you to provide a cash deposit.

Variable Rate Loan or Mortgage

A rate of interest on a loan or mortgage that can go up or down during the term of your agreement. The interest rate usually changes as the prime lending rate changes.

Wire Transfer

See "Telegraphic Wire Transfer."

Withdrawal

Money that comes out of your account when you make a direct debit purchase, write a cheque, or get cash from an Automated Teller Machine or bank.

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