What is a Chequing Account & How Does it Differ From a Savings Account?

A chequing account is generally your “main” bank account.

It’s where you store money to conduct your regular, day-to-day transactions, such as grocery purchases and utility bill payments.

It’s also likely the account you use to initiate money transfers and receive your paycheque.

What’s the Difference Between a Chequing and Savings Account?

On the surface, a chequing account and savings account seem indistinguishable, but there are some crucial differences between the two.

1. Primary Purpose

A chequing account is a place to hold money to pay for everyday essentials like food, rent, and fuel – basically anything that’s part of your regular budget.

In comparison, the chief purpose of a savings account is to set aside funds to help pay for a significant future expenditure, like a home renovation or vacation or to invest.

It’s also an ideal place to keep money in reserve for emergencies.

2. Interest

Since a chequing account stores readily accessible money for spending, your financial institution pays little interest on your balance.

Conversely, savings accounts always reward you with interest on your idle funds since it functions as a tool to save and grow your money for the long term.

3. Transaction Frequency

A chequing account allows you to conduct many transactions each month, usually free of charge.

However, each financial institution has different policies regarding fees associated with transactions.

On the other hand, a savings account permits fewer transactions– you’ll incur a fee if you transfer or withdraw your funds often.

The reason is that it’s designed to lock in money for an extended period rather than allow you to spend it freely.

4. Maintenance Fee

Chequing accounts typically charge a monthly maintenance fee, given the high frequency of transactions it accommodates.

Usually, the greater the number of transactions performed, the higher the fee.

However, many financial institutions waive it if you maintain a specific minimum balance.

Savings accounts typically do not have a monthly fee.

However, you can expect to pay transaction fees if you exceed your monthly transfer/withdrawal limit.

How Does a Chequing Account Work?

A chequing account allows you to make payments, receive money, and store money electronically.

Your chequing account number identifies your specific account and is used to process transactions. It consists of three components:

  • Institution number – the unique three-digit code associated with your bank
  • Branch transit number – the five-digit code associated with a specific bank branch 
  • Bank account number – the seven-to-twelve-digit code that identifies your chequing account.

A chequing account is used with a debit card, a physical payment card linked to your chequing account.

Using the card at a payment terminal deducts money directly from your account.

With this setup, you can:

  • Arrange pre-authorized payments
  • Withdraw cash from an ATM
  • Make one-time in-store purchases 
  • Accept funds from an online payment processor like PayPal
  • Send money to a friend or family member via Interac e-Transfer
  • Accept direct deposits from your employer 
  • Conduct transfers between different accounts you hold at the same institution
  • Write or deposit a cheque
Various Canadian finance and banking apps

Key Components of a Chequing Account

Below is a table of the key components that constitute a chequing account:

Minimum Deposit Usually, no minimum deposit is required to open and maintain a chequing account. 
Service Fees Chequing accounts come with various fees. The most common is the monthly maintenance fee, which usually ranges from $0 to $30 per month, depending on the services offered
Interest Rate Chequing accounts usually earn between 0% – 0.10% in interest annually. 
Debit Transaction Limit A typical chequing account provides you with a number of free transactions per month, but premium accounts can offer unlimited monthly transactions. 
Interac e-Transfer Limit Most chequing accounts offer free and unlimited Interac e-Transfers.
Overdraft Protection Overdraft protection allows you to spend more money than they have in their chequing account by borrowing funds from their financial institution (albeit at a high-interest rate). Overdraft protection is a standard feature on all but the most basic chequing accounts.
Perks Many financial institutions offer sign-up cash bonuses and temporary higher interest rates when you open an account with them. Others offer cash back, points, and miles on eligible purchases.

Advantages of Chequing Accounts

  • A flexible and convenient way to perform everyday transactions: bill payments, online money transfers, purchases, cash withdrawals, etc.
  • A safe and secure place to store your money 
  • You can conduct many transactions per month 

Disadvantages of Chequing Accounts

  • You typically earn little or no interest on the money sitting in your account
  • They offer fewer fraud protection features than other payment methods like a credit card
  • You may have to pay a steep monthly fee to maintain your account

Key Insight

The Canadian Deposit Insurance Corporation (CDIC) protects up to $100,000 that you hold in your chequing and savings accounts combined at the same institution, in case of a bank failure.

Types of Chequing Accounts

There are various types of chequing accounts available:

1. Standard Chequing

This basic, no-frills chequing account is the most common one you’ll encounter.

It’s suitable for a single user and allows for a wide range of daily transactions.

2. Joint Chequing

A joint chequing account is shared by two or more people who hold equal ownership rights and responsibilities over the account.

It’s suitable for married/common-law couples and families.

3. Interest-Bearing Chequing

A type of chequing account that earns the holder a small amount of interest.

4. Student Chequing

This chequing account is tailored to young people.

Financial institutions typically waive the monthly fee for student accounts.

5. US Dollar Chequing

This chequing account holds exclusively American dollars, helping users avoid conversion fees and unfavourable exchange rates.

Fact

TD allows joint chequing accounts with up to nine people listed as account holders.

How to Open a Chequing Account

If you’re a Canadian resident, you’ll face virtually no hurdles in getting a chequing account up and running.

You can sign up for one with a financial institution regardless of your credit score or employment status.

You can open an account in person at a local branch of a bank or credit union. 

The customer service representative will ask you to present two pieces of government-issued identification.

You’ll also need to provide personal details like your full name, address, phone number, and possibly your social insurance number (SIN).

Once they verify your identity, they’ll set you up with an account and provide you with your debit card.

Alternatively, you can apply for an account online; it usually takes only a few minutes to complete the necessary steps.

Your financial institution will then send you a package with documents that confirm your account along with your debit card, which you’ll have to activate before using. 

You must be at least 18 years of age to open a chequing account in Canada.

If you’re under 18, you can ask a legal guardian to open an account with you but be aware that each financial institution has a minimum age requirement for account holders.

Frequently Asked Questions

  • Should I open a chequing account?
  • Is my debit card tied to my chequing account?
  • How much money should I keep in my chequing account?

Mark is a freelance writer who specializes in covering personal finance topics related to investing, mortgages, credit cards, and more.

He is passionate about educating people on how the financial markets work and providing tips to help them better manage their money. Mark holds a bachelor’s degree in finance from the Northern Alberta Institute of Technology and has more than a decade of experience as an accountant.

Outside of writing and finance, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.