How to protect your money as a newcomer to Canada

Estimated reading time: 2.5 minutes

In summary:

• The Canadian financial system is among the safest in the world but newcomers must be careful of fringe financial services to protect their savings.
• Quick access to money may mean high-interest rates and expensive hidden fees.
• Use emergency funds or low-interest loans to pay for unexpected or impending costs.

Regulated by the federal government, Canada’s banking system is considered among the world’s safest and most stable. However, immigrants and refugees can sometimes find themselves being taken advantage of by fringe financial services in Canada like payday loan companies, cheque-cashing outlets, rapid-refund tax outlets or pawn shops. As a result, they can lose their hard-earned income to the exorbitant fees and high-interest rates of these organizations.

Windmill partner, Prosper Canada, a charitable organization focused on empowering newcomers and other marginalized groups with financial knowledge and skills, offers tips and resources to ensure new Canadians can protect their money and avoid being victims of fraud. Prosper Canada’s Money Management Learning Module on the Canadian Financial System can help you understand the basics of banking in Canada and how to make smart choices with your money.

The module highlights the five large banks and the smaller and regional banks across the country, including credit unions and trust companies. Most of these institutions offer services specific to newcomers.

Through its virtual training module, Propser Canada cautions that using fringe financial services can often cost much more than the fees paid at a traditional bank or credit union. Below, you’ll find examples of the types of financial services to watch out for and alternatives to consider.

Are you a skilled immigrant or refugee in need of an affordable loan to pay for the costs of accreditation, education, training or professional development courses in Canada? Take our two-minute eligibility quiz to find out if a Windmill Microlending loan can help you.

Cheque-Cashing Outlets

What they do: Cash cheques if you do not have a bank account, usually charging a percentage of your cheque plus a service fee. For example, on a $1,000 cheque they could charge a 3% fee ($30) plus a $3 service fee for a total charge of $33.

Alternative to consider: A basic bank account providing deposit, withdrawal and cheque writing privileges. Federal government cheques under $1,500 can be cashed, with ID, for no charge. 

Payday Loans

What they do: Offered by private lenders and cheque-cashing outlets, they provide short-term loans of 2-4 weeks against your next paycheque. You can borrow up to 50 per cent of your next paycheque amount. Payday loans are very expensive ways to borrow money as they have high service fees and interest charges. These get even higher if you do not pay the loan back on time. For example, if you earn $1,000 on your paycheque, you can borrow $500 from a payday loan service but could end up paying double that or more, with interest and other fees, depending on loan terms.

Alternative to consider: Try using money from your emergency reserves or savings account or inquire about securing a loan from a family member or friend. You may also be able to get a loan from your bank or credit union. If it is to be used for costs of accreditation, education or training you can get one from Windmill Microlending.

Rapid-Refund Tax Services

What they do: They provide “instant refunds,” but these are not tax refunds. They are very expensive loans. They charge high fees for services, including preparation fees, electronic filing fees, cheque cashing fees and loan charges. These fees can add up to hundreds of dollars. You get a refund amount right away, less the fees. The government then sends your tax refund to the service which pays off your loan.

Alternative to consider: Arrange a direct deposit in your bank account for your tax refund. Use free charitable community tax clinics for support in receiving your tax refund as efficiently and economically as possible.

Pawn Shops

What they do:  Loan cash in exchange for valuable objects, such as jewelry and electronics. These objects are “collateral”. If you repay the loan, you get the object back. If you don’t, the pawn shop keeps the item and sells it to someone else. These businesses charge high-interest rates and fees.

Alternative to consider: Look to other sources for the money you need such as family, friends, emergency funds and government grants.

Here are some other resources from Prosper Canada, and other organizations, to help you avoid high interest rates, hidden fees and protect your money. Learning more about these banking fundamentals can help you make smart and safe banking decisions as a newcomer to Canada.

My Money in Canada Virtual Toolkit — Includes videos, financial wellness checklists and step-by-step learning modules.

Protecting from fraud and scams — Government of Canada resources

Managing your money – Government of Canada resources

Canadian banking tips for newcomers

Understanding debt, credit and borrowing in Canada – Windmill blog article