Your monthly money: where the rest goes

Your paycheque has arrived. In Part 1 your salary turned into take-home pay. Now that money needs somewhere to live.

For most people in Canada it lands by direct deposit in a bank account. From there you pay rent and bills, send money to people, take out cash, save for something and move money into investments. Credit runs alongside all of that: it lets you use borrowed money now and pay it back later, which is handy for a big bill or a future mortgage and expensive when the paying-back part slips.

Keep one line clear from the start: your bank balance is money you have. Your credit limit is money someone is willing to lend you.

A bank account is a running record of money the bank is holding for you. Your employer deposits $2,400 and the balance goes up by $2,400. An $80 debit purchase brings it down. A $1,500 rent payment by pre-authorized debit leaves about $820.

A chequing account is for money that moves: pay comes in, bills go out, the card and transfers draw from it. A savings account is for money you are keeping. It usually pays a bit of interest and stays available for a goal or a cash cushion.

Neither one is an investment account. The account holds your money; an investment is something your money buys. Part 4 covers the accounts with special tax rules.

A few ways of moving money show up in your first week. Direct deposit puts money in. A pre-authorized debit, or PADA pre-authorized debit is permission you give a company to take an agreed payment from your bank account. You can review the agreement and your account rights if a payment is wrong., lets a company pull an agreed amount for rent, insurance, a phone plan or a credit-card bill.

Interac e-Transfer sends money from your account to another person's, using their email address or phone number. The email is only the notification; the banks move the money between them. When someone says “I'll e-transfer you,” this is what they mean.

Turn on Autodeposit and incoming transfers land in your account without a security question. Always check who you are sending to, especially if the request came out of nowhere.

Canadian banking is bigger than the five names on every corner. RBC, TD, Scotiabank, BMO and CIBC are the big national banks, and National Bank is big in Quebec. They do everything: accounts, cards, loans, mortgages, investments, branches.

Credit unions and caisses populaires are owned by their members. Digital banks like Tangerine, Simplii Financial and EQ Bank swap branches for an app and lower fees. A fintechA fintech is a company that uses technology, often an online platform or mobile app, to provide financial services. It may not be a bank or a deposit-insurance member itself. can look like a bank while your deposit actually sits at another institution. A prepaid card can look like a credit card while spending money you loaded yourself.

The logo on the app does not always tell you who is legally holding your money. Pick by the services you need, then check the fine print on who holds the deposit and what protects it.

If a bank fails, a federal insurance system pays depositors back. The Canada Deposit Insurance Corporation, or CDICThe Canada Deposit Insurance Corporation is a federal Crown corporation that protects eligible deposits at member institutions when a member institution fails., covers up to $100,000 per insured category at each member institution. You do not apply or pay for it; it comes with the account.

Cash in an account and a Guaranteed Investment Certificate, or GICA Guaranteed Investment Certificate is a deposit with a financial institution for a set term or rate. Eligible GICs can qualify for CDIC coverage, subject to the insurance category and member institution., are covered. Stocks, funds and crypto are not, even when you bought them through a bank.

Sometimes, yes. Branch banks often charge a monthly account fee for a chequing package and waive it if you keep a minimum balance. Digital banks often charge $0 but have no branches, fewer ATMs and no bank drafts.

Everyone in Canada can get a low-cost account for $4 a month or less at the big banks, and a newcomer can get a no-cost account for the first year. The Financial Consumer Agency of Canada lists the rules.

The small fees add up faster than the monthly one: another bank's ATM, a wire, a bank draft, overdraft, currency conversion. A non-sufficient funds fee, or NSFA non-sufficient funds fee can be charged when a payment tries to leave a personal deposit account without enough money available. Federally regulated institutions now face a $10 cap and other restrictions., is what you pay when a payment bounces; it is capped at $10 at federally regulated banks. Balance alerts and a small cushion in chequing stop most of them.

Tap a debit card and the money leaves your account. $2,000 in, $80 of groceries out, about $1,920 left. No loan.

Debit cards run on Interac Debit, Visa Debit or Debit Mastercard. Visa and Mastercard also run credit cards. The logo tells you where the card works; it does not tell you whether you are spending your money, prepaid money or borrowed money.

The line to remember: debit means spending your money; credit means borrowing someone else's. A prepaid card is loaded with your own money first, so it behaves like debit even with a Mastercard logo.

Credit is permission to borrow now and repay later. A credit card is one kind. Car loans, mortgages, personal loans and lines of credit are others; Part 3 compares them.

A card with a $3,000 credit limit does not give you $3,000. It lets you owe up to $3,000 at a time. Buy $100 of groceries and the card company pays the store; you now owe the card company $100.

Pay the $100 back and the room reopens. That is why it is called revolving credit. The limit is a ceiling on borrowing, not extra income.

A card runs in monthly billing cycles. Say the cycle ends May 31. You spent $900 in May, so the statement says: statement balance $900, minimum payment $30, payment due June 21.

Spend another $200 on June 5 and the app shows a current balance of $1,100. Only the $900 is due on June 21. The $200 belongs to next month's statement.

So every statement has three numbers: current balance, statement balance and minimum payment. The one to pay, in full, by the due date, is the statement balance.

Using a card does not have to cost anything. By law, federally regulated card issuers give at least a 21-day interest-free grace period on purchases after the statement date. Pay the statement balance in full by the due date and your purchases cost $0 in interest.

Carry a balance and interest starts. The rate on the card is a yearly rate, the APRAn annual percentage rate, or APR, expresses a borrowing rate over one year. Credit-card interest is then calculated under the card agreement, commonly using daily balances., and on most cards it sits around 20%. A cash advance is worse: no grace period, interest from day one, often a higher rate plus a fee.

The minimum payment keeps the account out of trouble. It does not pay the card off. In the FCAC example, $2,000 at 18% paid at $60 a month takes almost four years and $793 of interest. At $160 a month it takes 14 months and $231.

When you borrow in Canada, lenders report it to two credit bureaus, Equifax and TransUnion: how much you owe, how old each account is and whether you pay on time. That file is your credit report.

A formula turns the report into a credit score, usually between 300 and 900. Higher is better. The score in your banking app may use a slightly different formula than the one a lender pulls.

Paying on time counts most. Credit utilizationCredit utilization is the share of your available revolving credit that you are using. FCAC suggests trying to stay below 30% as a guideline, not as a magic cliff. counts next: on a $5,000 limit, owing $1,000 is 20%. Staying under 30% is the usual guideline.

Landlords, phone companies and lenders can all look at this file, where the rules allow. A clean file keeps doors open. No score guarantees a yes.

If you are a newcomer, this file starts empty. Ten years of perfect payments in France, India, China or Brazil do not follow you; Equifax and TransUnion only see what happens here.

Most big banks have a newcomer package with a basic credit card. If you cannot get an ordinary card, a secured credit card works: you leave a deposit, get a limit the same size, and use it like any card. The deposit is the lender's safety net.

Your only goal in year one is a clean record. One card, a few normal expenses on it, pay the statement in full when it arrives, repeat. History comes from months, not weekends.

Rewards are the layer on top. Cards offer cashback, travel points, airline miles or insurance. Some have no annual fee; others charge $120 or more for perks you may never use.

Say a card pays 2% cashback and you spend $2,000. You earned $40. If you carried that balance and paid $100 of interest, you are $60 poorer. Sort the debt out first; pick the rewards second.

A prepaid card is different again. You load your own money and spend it. The Mastercard logo is the network, not a loan, so a prepaid card builds no borrowing history unless the provider offers a separate credit-building product.

A few things people repeat that are wrong. You do not need to carry a balance to build credit; paying in full every month builds it just as well. Paying the minimum means you met the minimum, not that the debt is under control. A higher salary does not create payment history.

The 30% utilization figure is a guideline from FCAC, not a rule that snaps at 31%. Closing an old no-fee card can lower your available credit and shorten your history. And checking your own report never hurts your score; only a lender's hard check can.

The pattern underneath every myth is the same: borrow on purpose, pay on time and keep it simple enough that you can see what is going on.

You do not need a complicated setup. One chequing account where pay lands and bills leave. One savings account for money you are keeping. One credit card you can handle, with no annual fee while you learn.

Set a payment-due alert. If your income is steady, set the statement balance to pay itself automatically from chequing. Use the card only for things you could already pay for with your own money. Check the report once a year for mistakes. Then leave it alone and let the history build.

Salary became take-home pay. Take-home pay landed in chequing. Bills and spending leave from money you have; card purchases create a statement you pay from that same take-home pay. Keep those two systems separate in your head and Canadian banking gets a lot easier. Part 3 is about the order to use the money in.