A financial institution is a company or entity that handles and processes monetary transactions such as deposits, investments, loans, mortgages, insurance, etc.
In this article, we’ll discuss the main types of financial institutions, how they’re regulated, and what you should look for when choosing where to manage your finances.
Key Takeaways
- Deposit-taking institutions, insurance companies, and investment institutions are 3 types of financial institutions.
- Do your research when choosing a financial institution by checking its accreditation, CDIC insurance, perks, fees, and convenience factor.
- Financial institutions are federally regulated by the FCAC and OSFI.
3 main types of financial institutions
Financial products and institutions come in all sizes and shapes – from well established banks to brand new startups looking to disrupt the market. But did you know that we can roughly divide all of them into 3 main categories? Let’s take a closer look.
Deposit-taking institutions
Deposit-taking institutions directly receive cash deposits from clients, and then manage and protect these funds. They’re federally regulated according to the Bank Act.
These institutions cover the costs of operation by handing out loans and charging interest on them. This is the reason why there are so many free chequing and savings accounts out there.
Deposit-taking institutions include:
- Online-only and brick and mortar banks
- Credit unions
- Trust companies
- Mortgage loan companies
- Caisses populaires
Insurance companies
These are companies that sell insurance to protect you from specific kinds of damage or loss. They are financed in a manner similar to crowdfunding by charging a small fee regularly to their clients. These fees are used to fund operations and pay for insurance claims. Types of insurance include:
Investment institutions
Investment institutions' main business involves investing, administering, or managing money on behalf of their clients. These include:
- Investment banks
- Underwriters
- Brokerage firms
While these are the 3 main categories of financial institutions, there’s often a lot of overlap. For example, many banks offer chequing and savings accounts, insurance, and even investment options.
What to look for when choosing a financial institution
Choosing your financial institution shouldn’t be a last minute decision. They’re handling your money after all, and you want to make sure that you can trust them. While it’s impossible to completely eliminate all the risk that comes with choosing a financial institution, you should at least look for these factors.
Proper authorization and accreditation
Make sure the financial institution has proper certification. Banks, insurance companies, and trust companies are federally regulated by the Office of the Superintendent of Financial Institutions (OSFI), and must meet a number of specific guidelines. These include adequate capital, accounting standards, sound business and financial practices, corporate governance, etc.
The FCAC also supervises financial institutions and monitors their compliance with consumer standards.
Deposit insurance
Financial institutions that are members of the Canada Deposit Insurance Corporation (CDIC) insure bank clients for up to $100,000 on their deposits in the event of a bank failure.
There are over a 100 institutions that are members of the CDIC, including the Big 5 banks.
Some subsidiaries hold their clients’ funds in trust with a CDIC member institution. But before making a decision to bank with them, read the fine print to make sure your savings are covered.
Perks, services, features, and welcome bonuses
We’re all about getting the most out of your personal finance products, which is why we strive to showcase all the goodies and perks that each product offers vs. its competitors. So when it comes to choosing the right financial institution for you, it pays to do a bit of research to see if you could get a better deal elsewhere.
For example, are you looking for a new chequing account? There are many options available in the market – but which one offers perks that you would actually use?
Personal convenience
It doesn’t matter how many welcome bonuses and perks you’re offered if you can’t access them easily, or have to go out of your way to get them.
Sometimes what really matters is convenience. To determine if any given institution is convenient enough for you, ask yourself if it’s easy to access your account. Are there any physical locations nearby? Does the company have a good reputation for customer service? Does it have an app and is it easy to use?
Fees and terms of service
Before choosing to do business with any financial institution, make sure you completely understand the fees you’re liable to pay. Yes, it’s boring to read page after page of terms and conditions, and that’s by design. But it’s one of the best ways to know for sure what you’re getting.
If you read the terms and conditions, you’ll know if your bank account has a minimum balance to waive your monthly fees, if your car insurance only covers some things but not others, etc.
Look into what current clients are saying
Be sure to look into what current customers are saying about the financial institution you’re considering. Sites like Trustpilot can give you some insight into what people like and dislike about the company.
However, be sure to take reviews with a grain of salt. People that have had a bad experience with a financial institution tend to be more likely to drop a review, while those that just had a normal experience don’t.
Pay attention to feedback that has specific reasons behind the review. If you see a pattern or common complaints, such as waiting too long for customer service, or difficulty in closing accounts, then you should weigh those cons alongside the pros.
How are financial institutions regulated in Canada?
The primary regulators of financial institutions in Canada are the Financial Consumer Agency of Canada (FCAC) and the Office of the Superintendent of Financial Institutions (OSFI).
The FCAC is in charge of monitoring and supervising financial institutions such as banks, federal credit unions, trust and loan companies, insurance companies, retail associations, and external complaint bodies. It also supervises payment card network operators such as American Express, Discover, Interac, MasterCard, Visa, and more.
The Office of the Superintendent of Financial Institutions (OSFI) primarily focuses on making sure that financial institutions follow federal regulations and maintain financial stability.
Your experience with financial institutions
While there are many kinds of financial institutions in Canada, choosing the right one for you and your needs boils down to the same steps. Identify what your core needs are, compare what options are available, see what current clients are saying about them, check to see if they are properly accredited, and see how they fit within your priorities.
What’s your process for choosing a financial institution? Do you have any tips? Share your experiences with us in the comments below!
FAQ
What is a financial institution in Canada?
Financial institutions are companies or entities that provide financial products and services to their clients. These products and services deal with bank accounts, loans, investments, insurance, and other money-related products.
What is the largest financial institution in Canada?
As of 2024, the largest financial institution in Canada is the Royal Bank of Canada (RBC). Worldwide, RBC has nearly 100,000 employees and serves over 17 million clients.
Who regulates financial institutions in Canada?
The primary regulators of financial institutions in Canada are the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC).
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