What Is a Bank Account and Why Do You Need One?

A bank account is an account held with a financial institution that allows you to store, receive and manage money.

Most people use one to receive their pay, pay bills, make purchases and move money. Different types of accounts are designed for everyday spending, saving or specific financial goals.

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How Does a Bank Account Work?

When money is deposited into your account, your financial institution records the balance and gives you ways to access it.

Depending on the account, you may be able to:

• Use a debit card
• Withdraw cash from an ATM
• Send Interac e-Transfers
• Pay bills
• Receive direct deposits
• Transfer money between accounts
• Deposit cheques
• Earn interest

You can usually manage your account through online banking, a mobile app, an ATM or a branch.

What Are the Main Types of Bank Accounts?

Chequing account

A chequing account is designed for everyday transactions.

You might use it for:

• Receiving your pay
• Paying rent
• Buying groceries
• Paying bills
• Sending money
• Withdrawing cash

Some chequing accounts charge monthly fees or limit how many transactions are included.

Savings account

A savings account is designed for money you do not need for everyday spending.

You might use one for:

• Emergency savings
• A vacation
• A home down payment
• Upcoming large expenses

Savings accounts may pay interest on your balance.

High-interest savings account

A high-interest savings account works similarly to a regular savings account but generally offers a higher interest rate.

It can be useful for short-term savings that you want to keep accessible.

Why Do You Need a Bank Account?

You are not legally required to have a bank account for everyday life, but having one can make managing money significantly easier.

Receive your pay

Many employers pay employees through direct deposit.

Your income goes directly into your account instead of being issued as cash or a cheque.

Pay bills

A bank account makes it easier to pay recurring expenses such as:

• Rent
• Utilities
• Phone bills
• Insurance
• Credit cards

You can often automate these payments.

Make everyday purchases

A debit card connected to your account allows you to make purchases without carrying cash.

Send and receive money

You can use services such as Interac e-Transfer to send money to friends, family or businesses.

Keep your money secure

Keeping large amounts of physical cash at home creates a risk of theft, fire or loss.

A bank account provides a more secure way to store and access your money.

Build savings

Keeping spending and savings in separate accounts can make it easier to work toward financial goals.

Does a Bank Account Build Credit?

No, a standard chequing or savings account does not normally build your credit score.

You are using your own money rather than borrowing.

Credit history is generally built through products that report your payment activity to a credit bureau, such as:

• Credit cards
• Loans
• Lines of credit
• Credit-building products

Having a bank account can still help you manage bills and avoid missed payments.

Do You Need Good Credit to Open a Bank Account?

Usually, no.

You generally do not need a strong credit score to open a basic chequing or savings account because you are not borrowing money.

A credit check may be required if you also apply for:

• Overdraft protection
• A credit card
• A line of credit
• Another lending product

Ask whether a credit check will be performed before adding optional services.

Can You Open a Bank Account Without a Job?

Yes.

You generally do not need to be employed to open a basic bank account.

Students, retirees, newcomers, self-employed workers and people receiving government benefits may all be able to open accounts if they meet the institution's identification requirements.

What Do You Need to Open a Bank Account?

You will typically need acceptable identification.

Depending on the financial institution, this can include:

• Passport
• Driver's licence
• Provincial identification
• Permanent resident card
• Certain immigration documents
• Other acceptable government-issued identification

Some accounts can be opened entirely online, while others may require you to visit a branch.

Are Bank Accounts Safe?

Bank accounts are generally considered a secure place to keep money.

Eligible deposits at participating Canadian financial institutions may also be protected by deposit insurance.

The type and amount of protection depend on where your money is held and the applicable deposit insurer.

You should still protect your online banking password, PIN and verification codes.

What Fees Can Bank Accounts Charge?

Depending on the account, you may encounter:

• Monthly account fees
• ATM fees
• Transaction fees
• Interac e-Transfer fees
• Overdraft charges
• NSF fees

Some accounts waive fees when you maintain a minimum balance or meet other requirements.

Compare the fee structure before opening an account.

How Do You Choose the Right Bank Account?

Start with how you expect to use it.

For everyday spending, look for:

• Low or no monthly fees
• Enough included transactions
• Free or affordable e-Transfers
• Convenient ATM access
• Easy direct deposit
• A reliable mobile app

For savings, focus more on:

• Interest rate
• Withdrawal rules
• Monthly fees
• Minimum balance requirements
• Accessibility

You may benefit from having both a chequing account for everyday money and a savings account for money you want to set aside.

A bank account is ultimately a tool for managing your money.