Banking

Banks vs. Credit Unions

Banks

• Canada's banks are federally incorporated and regulated by the Bank Act of Canada

Banks

• have lending power: can lend out money to its clients/account holders (commercial and individual consumers)

Credit Unions

• locally-based and owned by members
• provincially legislated (unlike banks - federally)
• typically established to serve a particular grow of people based on geographic area, etc.

Interest Rates

What is interest?
What is the rate of interest?

Interest = cost of money

Two ways to look at interest

• Your bank charges you interest for the money you borrowed (the loan) from them
• You receive interest on the money you deposit in your account in the bank (e.g. 0.1% per annum (year))

What affects interest rates?

Many factors

• money supply
• rate of inflation
• length of time funds are borrowed
• Bank of Canada's monetary policy

What makes interest rates go up and down?

- rates of inflation
- monetary policy
- demand/supply of money in the economy

Example

• When more people want to borrow money than invest money (which means less money to lend) the price of borrowing will go up
• As a result, interest rates increase
• This prompts people to invest more, because they will get greater interest
• When more people want to invest than to borrow, interest rates go back down

Next:  Bank of Canada