Click on the letters below to find a term. Our glossary provides definitions for terms widely used in the financial industry. Several associations have online glossaries that define more specialized terms related to insurance, banking and investment.
If there’s a term you would like added to this glossary, please let us know.
A B C D E F G H I J-K L M N O P R S T U-Z
Accelerated biweekly payment
A payment frequency that allows you to pay half the monthly payment every two weeks. Since there are 52 weeks in a year, you will make 26 payments a year (52 ÷ 2). To calculate the amount of your accelerated biweekly payments, divide your monthly payment by two (for example, $1,000 ÷ 2 = $500). You make the equivalent of one extra monthly payment per year, which means you will pay off your mortgage faster and save in interest charges.
Accelerated weekly payment
A payment frequency that allows you to pay one quarter of the monthly payment every week. To calculate the amount of your accelerated weekly payments, divide your monthly payment by four (for example, $1,000 ÷ 4 = $250). You make the equivalent of one extra monthly payment per year, which means you will pay off your mortgage faster and save in interest charges.
Entity that enables merchants to accept payments by credit or debit card, by providing merchants with access to one or more payment card networks for the transmission or processing of payments. Sometimes called a payments processor.
The period of time it will take to pay off a mortgage in full. Not to be confused with the term of the mortgage.
A fee that is applied each year for the use of a credit card. It’s billed directly to your statement. Generally, an annual fee is paid in exchange for additional rewards or benefits. Note that many credit cards do not charge an annual fee.
Annual interest rate
The annual interest rate charged on transactions when you don’t pay your balance in full. Credit card issuers can charge different interest rates for different types of transactions, such as balance transfers, cash advances and purchases.
A type of investment contract that pays you income at regular intervals, usually after retirement.
Fee that some payment card networks charge to acquirers for each transaction transmitted through the network. Some acquirers may in turn charge this fee to merchants.
Any thing of value owned by an individual or organization.
Authorized user (secondary cardholder)
A person who has permission from the primary cardholder to use the credit card account. Authorized users usually receive another card and can use the account as though it were their own. The terms of some credit cards state that authorized users may be held responsible for the full balance on the credit card account. This applies regardless of how the total debt was incurred. Check your agreement.
Automated banking machine (ABM)
An electronic kiosk or terminal that allows you to conduct financial transactions such as paying bills, withdrawing cash and depositing cheques. Also called an automatic teller machine (ATM).
Automatic teller machine (ATM)
See automated banking machine.
Average daily balance
The total of the daily outstanding credit card balances each day in the billing period, divided by the number of days in the billing period.
The transfer of an outstanding credit card balance from one card to another, usually between different credit card issuers. The new card issuer usually charges interest from the day the amount is transferred to the new card—there is no interest-free period. Consumers sometimes choose to transfer credit card balances to cards that have lower interest rates.
A federally regulated financial institution that, in general, engages in the business of taking deposits, lending and providing other financial services.
Federal legislation governing the structure and operation of banks in Canada.
Bank of Canada
Canada’s central bank. It is responsible for Canadian monetary policy, issuing bank notes, regulating and supporting Canada’s principal systems for clearing and settling payments, and acting as fiscal agent for federal government debt. For more information, visit the Bank of Canada website.
The minimum lending rate of the Bank of Canada. It is applied to advances to institutions that are members of the Canadian Payments Association, and to purchase and resale transactions with key investment dealers in the money market. It is also the primary indicator of Bank of Canada monetary policy. The bank rate is an important tool because it is seen as the trend-setter for other short-term interest rates. Changes in the bank rate often lead to changes in the prime rate, which is the rate of interest that commercial banks charge their lowest-risk customers. Other rates can be affected, including those for mortgages, cars and business loans, as well as rates paid to savers on deposits and investment certificates.
An interest rate, applied to a renewed loan, which blends your existing interest rate and the rate currently available for a new term.
A certificate received for a loan made to a company or government. In return, the issuer of the bond promises to pay the lender interest at a set rate and to repay the loan on a set date.
A securities firm or a registered individual affiliated with one. Brokers are the link between investors and the stock market, handling the public’s orders to buy and sell securities, commodities, etc.
A browser's history is a log of sites that you visit. Browsers may clear the history at regular intervals, but you may still want to clear it manually for privacy.
Each time you access a file through your web browser, the browser stores it. This is known as the browser or memory ‘cache.’
Canada Deposit Insurance Corporation (CDIC)
A federal Crown corporation established in 1967 to protect Canadian currency deposits against the possible failure of member financial institutions (which include banks, and trust and loan companies). As a general rule, eligible deposits are protected up to a maximum of $100,000 per person, including principal and interest, at each member institution. For more information, visit the Canada Deposit Insurance Corporation website.
Canada Education Savings Grant (CESG)
Federal government program designed to help parents, grandparents and interested Canadians save for a child’s post-secondary education. The Government of Canada will contribute 20% of the amount of contributions made to a Registered Education Savings Plan, to a maximum yearly amount of $500 per child per year or a lifetime maximum of $7,200. For more information, visit the CESG page on the Employment and Social Development Canada website.
Canada Mortgage and Housing Corporation (CMHC)
Crown corporation that administers the National Housing Act for the federal government, and creates and sells mortgage default insurance products. For more information, visit the CMHC website.
Canada Premium Bond
A new savings product for individual Canadians, introduced by the Government of Canada in 1998. It offers a higher interest rate than the Canada Savings Bond, and is redeemable once a year on the anniversary of the issue date or during the 30 days thereafter without penalty. For more information, visit the Canada Investment and Savings website.
Canada Savings Bond (CSB)
A CSB is a savings product issued and guaranteed by the federal government. It offers a minimum guaranteed interest rate. CSBs have a three-year term to maturity, with interest rates remaining in effect for that period. At the end of the period, new rates are announced by the Minister of Finance based on the prevailing market conditions. It may be cashed at any time and earn the interest up to the date it is cashed.
CSBs are only available through the Payroll Savings Program, which allows Canadians to purchase CSBs through payroll deductions. For more information, visit the Canada Investment and Savings website.
Canadian Bankers Association (CBA)
Established in 1891, the CBA is the main representative body for banks in Canada. It provides its members—the chartered banks of Canada—with information, research, advocacy and operational support services. The CBA also provides information to the public on banking and financial issues. For more information, visit the CBA website.
Canadian Life and Health Insurance Association (CLHIA)
An association of most of the life and health insurance companies in Canada. It conducts research and compiles information about the life and health insurance industry in Canada. For more information, visit the CLHIA website.
Canadian Life and Health Insurance Compensation Corporation
A private, non-profit corporation established in 1990 by the life insurance industry. It is funded by the industry and provides Canadian policyholders with compensation coverage against loss of policy benefits in the event of the insolvency of their insurance company. For more information, visit the Assuris website.
Canadian Payments Association (CPA)
A financial network established in 1980 to operate a national clearing and settlement system. For more information, visit the CPA website.
Capital gain or loss
The profit or loss that results from the sale of an asset, such as a security or real estate.
Card not present
Refers to transactions other than point-of-sale where the payment card is not physically present, such as transactions completed online or over the telephone. Generally subject to higher merchant discount rates than transactions where the card is physically present, because there is a higher risk of fraud.
Cash obtained from an ABM or at a teller, charged to your credit card(s). A cash advance is a loan, and the amount you borrow may be subject to daily limits. There is no interest-free period, so interest is charged from the day you withdraw the funds until the day you repay the amount of the advance in full. It is therefore an expensive way to obtain cash.
Transactions that are treated like cash advances. As with cash advances, there is no interest-free period, so interest is charged from the day the transaction is made. Cash-like transactions include: wire transfers, money orders, travellers’ cheques and gaming transactions such as buying lottery tickets, casino gaming chips, and betting.
An optional feature that pays you a percentage of your mortgage amount in cash right away. You may have to pay a higher interest rate in order to get a cash back option on your mortgage. It can help you pay for things you’ll need when getting a new home, such as legal fees or even furniture.
A plastic card that allows the holder to make purchases at participating retailers with borrowed funds.
A written order for payment of a certain amount of money.
Cheque cashing outlet
A business that provides cheque cashing and basic financial services, such as foreign currency exchange, money transfers and money orders.
Costs in addition to the purchase price of the home, such as appraisal fees, legal fees or prepaid property taxes. These costs must be paid before you take possession of your home. They range from 1.5% to 4% of a home’s selling price.
A mortgage agreement that cannot be changed before the end of the term. Your lender may let you make certain prepayments without paying a charge, but you will usually have to pay a charge to break or change your mortgage agreement.
Code of conduct
Non-legislated guidelines that one or more organizations agree to follow. Also referred to as “voluntary code” or “code of practice,” it typically outlines service standards that you can expect in dealings with a company subscribing to the code.
Coercive tied selling
An illegal practice where a lender pressures or forces you to buy another of their products as a condition for giving you the mortgage loan. This is against federal law. However, your lender can offer you, in conjunction with one of their products, another product or service on more favourable terms than they normally would provide—for example, a lower mortgage rate if you have investments with the same financial institution.
Collateral charge mortgage
A type of mortgage whose features may include the ability to potentially borrow additional funds, subject to your lender’s approval, without the need to discharge your mortgage, register a new one and pay legal fees. If you want to switch your existing mortgage to a different lender at the end of your term, note that other lenders may not accept the transfer of your mortgage. This means you may need to pay fees to discharge your mortgage and register a new one in order to change lenders. See also: standard charge mortgage.
An investment that gives the holder part ownership in a company and the right to vote on major decisions affecting it.
Procedures that financial institutions must have in place for customers who want to make a complaint.
The Commissioner of the Financial Consumer Agency of Canada may enter into an agreement, called a “compliance agreement,” with a financial institution for the purposes of implementing any measure designed to further compliance by that institution with federal consumer provisions (see below).
Consumer price index (CPI)
Measure of price changes, produced by Statistics Canada on a monthly basis. It measures the retail prices of a “shopping basket” of about 300 goods and services, including food, housing, transportation, clothing and recreation.
Certain sections of various federal acts and regulations relating to financial institutions (e.g., the Bank Act, the Insurance Companies Act) are designated as “consumer provisions” by the Financial Consumer Agency of Canada Act. They are designed to protect consumers in their everyday dealings with financial institutions. The Financial Consumer Agency of Canada (FCAC) monitors federally regulated financial institutions to ensure they adhere to the consumer provisions that apply to them. To learn more, visit the Your rights and responsibilitiessection of our website.
A payment card-based and/or mobile device-enabled payment transaction that is initiated at the payment terminal at a point of sale and that does not require contact with the payment terminal at the point of sale.
A mortgage loan of up to a maximum of 80% of the purchase price of a home. Mortgage default insurance is not required for conventional mortgages.
A cheque provided by the credit card issuer that results in a charge to your credit card. When you use a convenience cheque, the transaction is treated as a cash advance. There is no interest-free period, and you’re charged interest until you pay back the amount of the cheque in full. It is therefore an expensive way to pay.
A fee for withdrawing money from an ABM that does not belong to your credit card issuer.
A mortgage feature that allows you to change your interest rate mortgage to another interest rate mortgage at any time with no penalty.
A cookie is a file created by a web browser at the request of a web site. The cookie is then stored on a computer. Cookies usually store user-specific information such as selections in a form, shopping cart contents, or authentication data.
Co-operative credit association
An association that is organized and operated on co-operative principles, with one of its principal purposes being to provide financial services to its members.
Co-operative Credit Associations Act
Federal legislation governing the structure and operation of co-operative credit associations in Canada.
A plastic payment card that allows the holder to obtain goods and services on credit terms and without the requirement to pay cash. A credit card may also be used to obtain cash.
Credit card balance
The amount of money you owe your credit card issuer.
See Merchant discount rate.
A rating created by authorized credit agencies that denotes a person’s credit history.
A summary of your credit history and one of the tools lenders use to decide whether or not to give you credit. You can request a free copy of your credit report from the two credit reporting agencies, Equifax and TransUnion.
A three-digit number that is calculated using a mathematical formula based on information in your credit report. Businesses use it to see how risky it would be for them to lend you money. The credit reporting agencies, Equifax and TransUnion, use a scale from 300 to 900. The best score is 900.
Credit union/caisse populaire
A co-operative financial institution that is owned by its members and operates for their benefit. Credit unions and caisses populaires (a form of credit union located primarily in Quebec) are subject to provincial regulation and are usually small and locally oriented.
A plastic card that, when used in conjunction with a personal identification number (PIN), allows you to electronically access your bank accounts from automated banking machines or at retailers offering the Interac Direct Payment service.
A set amount that you must pay before an insurance company provides any benefit payments to you under an insurance policy.
The process of converting from a mutual company to a stock company. A mutual company is owned by its voting policyholders, while a stock company is owned by its shareholders. For more information, visit the Office of the Superintendent of Financial Institutions website.
Department of Finance
The federal department primarily responsible for providing the government with analysis and advice on the broad economic and financial affairs of Canada. Its mandate includes preparing the federal budget, preparing tax and tariff legislation, managing federal borrowing on financial markets, and representing Canada within international financial institutions. To fulfil the department’s role, Finance officials monitor and research the performance of the Canadian economy in all important aspects: output and growth, employment and income, price stability and monetary policy, and long-term structural change. The department is also vitally concerned with trade, monetary affairs and other aspects of the global economy that bear on Canada’s domestic performance. For more information, visit the Department of Finance website.
Money put into an account at a financial institution, such as a bank. The deposit may be in the form of cash, cheque or electronic transaction.
An account in which money is deposited. Examples include chequing and savings accounts.
Certain types of deposits with a financial institution are insured up to a maximum amount, in the event that the financial institution fails (i.e., goes bankrupt). For more information, visit the Canada Deposit Insurance Corporation website.
A bank, trust company, credit union/caisse populaire or other financial institution that accepts deposits from the public and provides regular banking services, such as chequing and savings accounts.
A financial instrument that derives its value from the performance of another asset, index or investment. There are various types of derivatives, such as swaps, options, futures and forward contracts. For more information, visit the Ontario Securities Commission website.
A firm that buys and sells investments for the public without giving any advice (in contrast with a full-service brokerage, which executes trades and provides advice). A discount brokerage typically charges lower commissions or trading fees than a full-service brokerage.
A portion of a company’s profit paid to shareholders.
The amount of money you deposit when you first buy your home. It must be at least 5% of the purchase price, but can be more. The down payment will help determine how much you need as a mortgage loan, and whether or not you will have to pay mortgage default insurance, which is required if you have a down payment of less than 20% of the purchase price.
Effective merchant discount rate
Calculated as the total fees paid by the merchant to an acquirer, related to the processing of a specific type of payment card from a payment card network, divided by the total sales volume for that type of payment card.
Electronic commerce (E-commerce)
Conducting business communications and transactions over networks and through computers. Electronic commerce is the buying and selling of goods and services, and the transfer of funds, through digital communications. It also includes buying and selling over the Internet, electronic fund transfers, smart cards, digital cash and all other ways of doing business over digital networks.
The process of arranging one’s personal affairs to provide for death or mental incapacity.
Federally regulated financial institution
A financial institution regulated by the federal government. It has been created or allowed to offer financial services in Canada pursuant to one of the financial institution statutes established by the federal government (the Bank Act, the Insurance Companies Act, etc.). Federally regulated institutions (also called federal financial institutions) consist of all banks and all federally incorporated or registered insurance, trust and loan companies and co-operative credit associations.
An individual who advises clients on one or more aspects of their finances. Financial advice comes in many forms and from many sources. It can be from an insurance agent who recommends certain types of insurance, an accountant who offers tax tips, or a mortgage broker who suggests a home financing strategy. A financial adviser is not to be confused with a financial planner, although their roles may overlap. A financial planner analyses a client’s total financial situation and prepares a comprehensive plan to help that person attain financial security in the long term.
Financial Consumer Agency of Canada (FCAC)
An independent body working to protect and inform consumers of financial products and services. Established in 2001 by the federal government to strengthen oversight of consumer issues and expand consumer education in the financial sector, in July 2010, FCAC was also tasked with the oversight of payment card network operators and their commercial practices.
A commercial or investment bank, trust company, brokerage house, insurance company, or other institution that participates in financial transactions involving cash or financial products. The primary role of such an institution is to facilitate the financing of investments, from home mortgages to the raising of funds via the issue of debt or equity for mega-projects. It may also provide insurance, take on fiduciary responsibilities, store cash and securities for safekeeping, etc.
A professional who reviews and analyses all aspects of a client’s financial situation—investments, tax situation, insurance, retirement strategies and estate planning—and prepares a comprehensive individualized plan to help that person attain financial security in the long term. A financial planner works with clients to assess their goals and important personal information, and then provides written recommendations and implements a financial plan tailored to their needs. Currently, Quebec is the only province with legislated standards for financial planners (i.e., to be a financial planner in Quebec, an individual must be licensed and fulfil certain educational and experience requirements). Regulators are in the process of developing common standards that would apply to financial planners in the rest of the country.
Financial service charge
A fee charged by a financial institution for using its services—for instance, for making bill payments, writing cheques or using automated banking machines. Fees vary depending on the service and the financial institution used. Under per-transaction fee plans, you pay as you go for each transaction; under flat fee plans, you pay a set price each month for a certain number of transactions. Companies set their own service charges but federally regulated financial institutions must advise clients when they plan to increase or introduce new fees.
Fixed interest rate mortgage
A mortgage loan where the interest rate and payment amount do not change for a specific term.
Foreign bank branches
Legislation permits a foreign bank to operate in Canada through branches rather than subsidiaries, and to focus on commercial banking and broader lending activities. Foreign bank branches are permitted to take only deposits of $150,000 and over, which are defined as retail deposits.
Various instruments used to settle payments for transactions between individuals or organizations using different currencies (e.g., notes, cheques, etc.).
Four-party payment card model
In addition to the payment card network, consists of:
- cardholder making a purchase
- financial institution issuing the card to the cardholder
- and an acquirer/payment processor.
Fraternal benefit society
An institution that has a representative form of government and is operated for fraternal, benevolent or religious purposes, including the insurance of members or the spouses, common-law partners or children of members against accident, sickness, disability or death.
A firm that buys and sells investments, provides investment advice and helps manage portfolios. It typically charges higher commissions or trading fees than a discount brokerage, which doesn’t offer investment advice.
General Insurance OmbudService (GIO)
The General Insurance OmbudService assists in resolving differences between home, car and business insurance companies and their customers. When disputes arise, GIO’s professional mediators and experienced customer services officers help insurance companies and customers work toward a solution that is in the best interest of all parties in a fair, independent and impartial environment. For more information, visit the GIO website.
Gross debt service (GDS) ratio
The percentage of your gross income (before deductions such as income tax) required to cover home-related costs, such as mortgage payments, property taxes, heating and 50% of condo fees (if applicable). Generally, the GDS ratio should not be more than 32% of your gross income. See also: total debt service (TDS) ratio.
Guaranteed investment certificate (GIC)
An investment that offers a guaranteed rate of return over a fixed period of time, usually between 30 days and 5 years.
Insurance that pays for specified expenses related to medical treatment.
High ratio mortgage
A mortgage for more than 80% of the purchase price of the home. For a high ratio mortgage, mortgage default insurance is required.
A company that has control over other companies through ownership of a sufficient proportion of those companies’ common stock.
Home Buyers’ Plan (HBP)
A federal government program that allows first-time homebuyers to withdraw money from their Registered Retirement Savings Plans (RRSPs) tax-free to make their down payment or other closing costs. The HBP is administered by the Canada Revenue Agency.
The difference between the value of your home and the unpaid balance of your mortgage. Your home equity increases with time as you pay your mortgage down and/or as the value of your home increases.
Home equity line of credit (HELOC)
A line of credit secured by your home. You can borrow money up to the credit limit, which is usually a percentage of your home’s value.
Independent sales organization (ISO)
Organization that offers payment processing and related services to merchants but does not have direct access to the payment card networks (that is, it is not an acquirer). Frequently ISOs offer packages that combine services from multiple service providers, which may include contracts with different terms and conditions for the various providers. ISOs may provide some of the services themselves or act as sales agents for a specific acquirer that provides all services.
A statistical measure of the state of the stock market or economy. There are indexes that measure changes in the prices of consumer goods and services (e.g., consumer price index) and others that measure the value of groups of stocks or bonds (e.g., stock market index).
Index-linked deposit (ILD)
A term deposit that pays a rate of return based on the performance of one or more financial indicators such as the level of a stock market index (e.g., Toronto Stock Exchange [TSX] 60 or 35) over the term of the deposit. It differs from a savings product that pays a fixed rate of interest and assures a guaranteed return on the investment, such as a traditional GIC or term deposit. With an ILD, the original deposit is guaranteed but any return is not. An example is a market-linked GIC: if the stock market rises over the term of the investment, the investor benefits from the rise up to a maximum return. If there is no rise in the stock market, the original deposit remains fully protected but the investor will receive no return (i.e., no interest is payable).
In good standing
The fact that payments on a credit account are up-to-date—in other words, the cardholder has made at least the minimum payment, has rarely missed payments and is not over the credit limit.
The average rate of increase in prices. When economists speak of inflation as an economic problem, they generally mean a persistent increase in the general price level over a period of time, resulting in a decline in a currency’s purchasing power. Inflation is usually measured as a percentage increase in the consumer price index.
A request for payment of benefits under the terms of an insurance policy.
A person or party requesting payment of benefits under the terms of an insurance policy.
Insurance Companies Act
Federal legislation governing the structure and operation of federally incorporated or registered insurance companies in Canada.
A financial institution (either federally or provincially regulated) that engages primarily in the business of insuring risks. Insurance companies are generally divided into two categories: life and health insurers, and property and casualty insurers.
A written document that serves as evidence of insurance coverage and contains pertinent information about the benefits, coverage and owner, as well as its associated obligations.
National organization of financial institutions and technology service providers, allowing Canadians convenient access to their deposit accounts through the shared network of automated banking machines and Interac Direct Payment, the debit card service. For more information, visit the Interac Association website.
Interac Direct Payment
A means of paying for goods and services with a debit card that authorizes transfer of the funds, via the Interac Direct Payment network, directly from the purchaser’s account to the merchant’s account.
The fee set by the payment card network that is paid by acquirers to the financial institution who issued the card to the purchaser. The interchange fee typically makes up a significant portion of the fees that merchants pay to their acquirer. Note: Interchange does not apply to Interac or American Express transactions, as these networks have different operating models.
The amount paid by a borrower to a lender for the use of the money.
Interest-free grace period
A number of days during which no interest is charged on the transaction. By law, all federally regulated financial institutions that issue credit cards must provide a minimum 21-day interest-free grace period on all new credit card purchases, as long as the balance is paid in full by the credit card statement’s due date. NOTE: There is no interest-free grace period for cash advances, cash-like transactions or balance transfers.
The percentage used to calculate the interest to be paid.
Interest rate cap
A maximum interest rate that can be charged on a variable interest rate mortgage, regardless of any increase in market interest rates.
A special interest rate on credit card balances that some issuers offer for a specific period of time, usually from a few months to a year. Many credit card issuers offer low introductory rates to attract new cardholders.
Money put into a form that earns a return or profit. In essence, the money is being used to make money.
A firm that trades securities for its clients and offers other investment services. Also known as a securities dealer or brokerage house.
Investment Dealers Association (IDA)
Formed in 1916, the IDA is the national self-regulatory organization of the securities industry. It monitors and regulates the activities of investment dealers, and promotes the interests of the securities industry. For more information, visit the IDA website.
The income received from investment in securities and property. It includes rent from property, dividends from shares in corporations, and interest from bonds, guaranteed investment certificates, bank accounts, certificates of deposit, Treasury bills and other financial securities.
An Internet Protocol address (IP address) is a unique string of numbers separated by periods that identifies each computer communicating over a network. An IP address indicates the location of a device.
Financial institution that provides the payment card to the cardholder. Approves or declines transactions submitted by merchants, collects payments from cardholders, and pays the total amount of their cardholders’ transactions as part of the settlement process. Collects an interchange fee from the acquirer for each transaction (except in card networks with a three-party model where the same organization plays the roles of both card issuer and payment processor).
J - K
A project undertaken by two or more parties to achieve a mutual objective.
An agreement to rent for a period of time at an agreed price.
An institution or person who lends money to people or companies. The lender will set the interest rate and the terms of the loan.
In the context of credit cards, legally responsible for repaying the credit card balance.
Life and health insurance company
A financial institution that offers life and health insurance products and a range of other financial products and services, such as annuities and Registered Retirement Savings Plans. The federal and provincial governments share jurisdiction over life and health insurers. In general, the provinces regulate licensing and marketing, while the Office of the Superintendent of Financial Institutions conducts prudential reviews of the companies to determine their financial soundness. Federal supervision covers Canadian-owned insurers and branches of foreign companies that hold more than 90% of industry assets.
An insurance policy that pays a set amount to those named in the policy (the “beneficiaries”) when the policy-holder dies.
Line of credit
A type of loan in which a borrower draws down funds as needed, up to a specified maximum.
One of the ways that charges to a merchant may be calculated if the merchant cancels a payment processing contract in circumstances other than the “penalty-free” scenarios specified in the Code of Conduct. Generally speaking, the amount of liquidated damages is related to an estimate of the processor’s anticipated future revenue from the merchant under the contract. Different payment service providers may use different formulae for calculating liquidated damages, and some apply a flat cancellation fee instead. If applicable, the merchant agreement will provide details of cancellation fees and if based on liquidated damages, how they are calculated. Also referred to as penalty fees or early termination damages.
The ease with which assets or investments can be converted into cash—that is, made “liquid.” Liquid investments include savings accounts, Canada Savings Bonds, Treasury bills and money market mutual funds. In contrast, a home is not considered a liquid investment because it cannot be easily transformed into cash.
A financial institution that operates under either provincial or federal legislation and conducts lending activities similar to those of a bank.
Locked-in Registered Retirement Savings Plan
A Registered Retirement Savings Plan set up to receive funds transferred from a registered pension plan on the condition that it is used solely for retirement income purposes. The pension monies are usually “locked in” (unless otherwise permitted by the legislation of the province in which the employer is registered). A locked-in RRSP can also be an investment bought through a financial institution, with the monies locked in for a specific period as agreed by both parties (the financial institution and the client) at the time of the purchase.
Eight banks in Canada have each signed a memorandum of understanding (MOU) with the federal government, agreeing to offer a standard low-fee account to their customers. The names and features of the accounts differ by bank, but the accounts all meet certain standards, including: a low monthly fee; the availability of some in-branch transactions; no charge for deposits; and a free monthly statement or passbook. Negotiating MOUs with the banks is an approach the government has taken to ensure that Canadians have access to an account at an affordable price. The eight banks are the Bank of Montreal, Royal Bank of Canada, National Bank of Canada, HSBC Bank Canada, Laurentian Bank of Canada, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and TD Canada Trust.
The time at which a loan, insurance policy or annuity reaches the end of its term.
Merchant discount rate
Percentage and/or transaction fee applied to credit card transactions and paid by the merchant to the acquirer. May differ from the effective merchant discount rate, as it may not include all applicable fees charged by the acquirer for that type of card. Merchant discount rates may vary by merchant category, card payment volume, category of card and the type of transaction (for example, in-person versus over the internet). Sometimes called the credit rate.
The joining together of two companies to form one entity.
The allocation of small loans, usually under $5,000, to individuals to allow them to sustain self-employment or start up small businesses.
The minimum amount your credit card issuer requires you to pay on the outstanding credit card balance.
Missed payment interest rate
The interest rate charged on outstanding balances if, for example, you miss more than one payment in a row. The missed payment interest rate is usually two to six percentage points higher than your normal interest rate on outstanding balances, depending on the credit card issuer.
A portable electronic device that may be used by a consumer to facilitate the storage and/or transmission of data electronically for enabling a contactless payment.
A graphic user interface (software application) that presents one or more payment applets to a consumer for the purposes of enabling a contactless payment.
The process of managing the supply of money and credit to contribute to economic performance. The Bank of Canada manages Canadian monetary policy mainly through its influence on short-term interest rates, though it is ultimately answerable to the federal government for its actions. The Bank influences short-term interest rates by adjusting its own bank rate. A rise in the bank rate “tightens” the supply of money and credit, at once restraining elements in the economy that contribute to inflation and elements that contribute to economic performance. A lowering of the bank rate does the reverse. The bank rate and the money supply influence interest rates and the exchange rate of the Canadian dollar, and determine the monetary conditions under which the Canadian economy operates. For more information on monetary policy, visit the Bank of Canada website.
A financial company that specializes in a single type, or line, of products, such as credit cards, mortgages or home equity loans, and that may use direct marketing practices and statistical models to target specific customers. In many cases, monolines have no expensive overheads from large branch networks and have low-cost financing open to them by securitizing their loans on the capital markets. These features make such companies highly competitive.
A type of approach used by an authority to get members to adhere to a policy, goal or initiative. It involves applying pressure on members, rather than using legislation or force, to achieve a desired result.
A loan (usually for buying a property) in which the lender can take possession of the property if the loan is not repaid on time. Payments include the principal and the interest; they may also include a portion of the property taxes.
A person or organization that offers the mortgage products of different lenders. An independent contractor who offers the loan products of different lenders. A mortgage broker is an agent for lenders in much the same way that an insurance broker is an agent for insurance companies. Mortgage brokers act as agents for banks, trust companies, credit unions, mortgage corporations, finance companies and individual private investors. Some mortgage brokers are exclusively lenders of their own money and provide a direct source of mortgage funds.
Mortgage default insurance
Insurance that protects the mortgage lender if you cannot make your mortgage payments. It does not protect you. It is required by law if your down payment is less than 20%. This should not be confused with mortgage life insurance or home, property, fire and casualty insurance, which typically protect the home owner.
Mortgage Life Insurance
Mortgage Life Insurance guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
A loan secured by real estate in which the lender can take possession of the property if the loan is not repaid on time. Payments include the principal and the interest and may also include a portion of the property taxes.
A type of investment in which the money of many investors is pooled together to buy a portfolio of different securities. The fund is managed by a professional who invests in stocks, bonds, options, money market instruments or other securities.
Mutual fund company
A company that uses its capital to invest in other companies. Its capital is a pool of funds gathered from a number of investors and placed in securities selected to meet specific criteria and goals. Mutual fund companies fall under the jurisdiction of the provincial securities commissions.
Near Field Communication (NFC)
Technology that enables contactless payment card transactions by waving or tapping the card close to the payment terminal in a point-of-sale environment. Data from the chip on the card is transmitted to the payment terminal to verify cardholder’s approval. Swiping or inserting the card is not required. A maximum value for NFC transactions is generally set by the payment card network.
Network access fee
Portion of transaction value that some payment card networks charge the card issuer and/or the acquirer.
An effective merchant discount rate that payment processors may charge a merchant for transactions that do not meet the criteria for the lower qualified rate. Factors that determine whether a transaction is subject to the non-qualified rate vary to some extent between payment processors. Generally speaking, remote transactions for which the card is not physically present (for example, online or telephone transactions) are likely to be considered non-qualified. (Note that some processors may offer an in-between rate for transactions meeting their definition of “mid-qualified rate.”) See also: qualified rate.
Office of the Superintendent of Financial Institutions (OSFI)
A federal agency established under the Financial Institutions and Deposit Insurance System Amendment Act to supervise all federally regulated financial institutions. These include all banks, all federally incorporated or registered insurance, trust and loan companies, co-operative credit associations, and fraternal benefit societies. OSFI is also responsible for monitoring federally regulated pension plans. For more information, visit the Office of the Superintendent of Financial Institutions website.
An individual appointed to receive, investigate, report on and (in some instances) resolve complaints against institutions. The Ombudsman for Banking Services and Investments (OBSI) is an example.
Ombudsman for Banking Services and Investments (OBSI)
The Ombudsman for Banking Services and Investments (OBSI) is an independent organization that investigates customer complaints against financial services providers, including banks and other deposit-taking organizations, investment dealers, mutual fund dealers and mutual fund companies. Visit www.obsi.ca or call 1-888-451-4519.
OmbudService for Life and Health Insurance (OLHI)
OmbudService for Life and Health Insurance (OLHI) is an independent service that assists consumers with concerns and complaints about life and health insurance products and services. For more information, visit the OLHI website.
A mortgage that can be prepaid at any time during the term, without paying a prepayment charge. The interest rate on an open mortgage may be higher than on a closed mortgage with a similar term.
Federal rules and restrictions governing the ownership of financial institutions. For example, the Bank Act prohibits control of any large financial institution by any single shareholder or group of shareholders. Large banks (those with equity greater than $5 billion) must be “widely held”—that is, no one investor can own more than 20% of any class of voting shares or 30% of non-voting shares.
A software application on a mobile device, or within a mobile wallet, that enables a contactless payment by linking a single payment credential (e.g. credit or debit) through a specific payment card network.
Payment card network
A network that enables acceptance of credit and/or debit cards bearing the network’s brand by providing connections between merchants, acquirers and financial institutions that issue payment cards. In Canada, there are currently six payment card networks: American Express Canada, Discover, The Exchange, Interac, MasterCard Canada and Visa Canada.
The data that is required to complete a contactless payment (e.g. identifying information for the specific payment network, issuer, and cardholder) that is stored securely and accessed by a payment applet or token associated with a payment applet.
A company (often a third party) used by a merchant to access a payment card network. Also see Acquirer.
An electronic clearing and settlement system that enables cheques and other methods of payment to be used in transactions throughout the economy. This financial network includes the cheque payment system, the Visa and MasterCard credit card systems, the automated banking machine and debit card networks of Interac, and the separate clearing systems for debt and equities and for mutual funds. One part of the financial network was established in 1980 under the Canadian Payments Association Act to operate a national clearing and settlement system.
Personal identification number (PIN)
A secret code intended for the sole use of its user. For example, the PIN is used in conjunction with a debit card to confirm the identity of the cardholder and to authorize debit card transactions.
Refers to transactions made when the cardholder is present in person and presents the card for the transaction. The card is inserted in a payment terminal, swiped or, in the case of contactless payment, held near the payment terminal.
An individual or organization with an insurance policy.
A withdrawal from an account made by a company with the written authority of the account holder. A convenient substitute for issuing cheques to pay the same bill every week or month.
The interest rate advertised or shown by a financial institution. Usually, financial institutions advertise their mortgage interest rates without any discounts. You may be able to negotiate a lower interest rate before you sign your mortgage agreement.
Payment made at fixed intervals for an insurance policy.
Payment of an additional portion or all of the balance before the end of your term. Lenders may require you to pay a charge and fees when you use a prepayment option under a closed mortgage agreement if your prepayment is more than your mortgage contract allows as a privilege.
Your lender may require you to pay a charge if you want to make a prepayment greater than the amount allowed in your mortgage agreement, or pay off or break a closed mortgage before the end of the term. Sometimes also called a penalty.
A fee charged to you by the lender for making a prepayment greater than the amount allowed in your mortgage agreement, or for paying off a closed mortgage before the end of the term.
Terms of your mortgage contract that allow you to pay an amount toward a closed mortgage on top of your regular payments, without triggering a prepayment charge. For example, you may be allowed to make lump-sum payments up to a certain amount or increase the amount of your regular mortgage payments.
The person who applied for the card and whose name is on the credit agreement.
The interest rate a financial institution charges on loans to its best customers.
The amount of money that you borrowed from a lender to pay for your home.
Property and casualty (P&C) insurance
Also known as “general” insurance because it provides insurance protection for risks other than those related to life or health. Examples include home, automobile, travel and liability insurance.
Property and casualty insurance company
A company that provides insurance coverage for risks other than life and health. The P&C insurance industry provides insurance protection for most homes, motor vehicles and commercial enterprises throughout the country.
Property and Casualty Insurance Compensation Corporation (PACICC)
An industry-funded, non-profit corporation that, in the event of the failure of a property and casualty insurer in Canada, will respond to claims of policyholders. It covers most policies issued by P&C insurance companies. All property and casualty insurers licensed in a province or territory of Canada are required to be members of PACICC, except for insurers licensed to sell only specialty lines of insurance such as surety, fidelity, marine and aviation, as well as auto insurers in British Columbia, Manitoba and Saskatchewan. For more information, visit the PACICC website.
Provincially regulated financial institution
A financial institution regulated at the provincial level. This includes all securities dealers, credit unions and caisses populaires, and all provincially incorporated or registered insurance, trust and loan companies, and fraternal benefit societies.
Public Accountability Statement
A statement that must be published yearly by any bank, trust or loan company, or domestic insurance firm with more than $1 billion in equity, describing its contribution to Canada’s economy and society. The statements are filed with the Financial Consumer Agency of Canada and are available to the public from the financial institution.
Public Interest Impact Assessment
A report that must be submitted to the Minister of Finance for proposed mergers between large banks (i.e., banks with more than $5 billion in equity). The assessment must (a) describe their business plan and objectives; (b) clearly identify the benefits and costs to the nation and the public; and (c) outline any steps to mitigate public interest costs and any assurances in respect of public interest benefits.
Rate charged for transactions that are eligible for the lowest merchant discount rate for that category of card, under the terms of the merchant’s contract. Generally these are point-of-sale transactions involving a PIN to verify the cardholder’s approval of the transaction. Premium cards generally attract higher rates than the qualified rate.
Includes land and anything growing on or
permanently attached to or built on that land, such as a building, and any
associated rights and interests in the land. The term “immovable” is used in
A base rate, such as the prime rate, used in the calculation of variable credit card interest rates.
Registered Education Savings Plan (RESP)
An investment plan that allows savings to grow tax-free until a child is ready to pursue a post-secondary education, at which time the money is withdrawn to help finance the costs. For more information, visit the Employment and Social Development Canada website.
Registered Retirement Income Fund (RRIF)
A maturity option available for Registered Retirement Savings Plan assets to provide a stream of income at retirement.
Registered Retirement Savings Plan (RRSP)
A government-approved savings plan designed to encourage Canadians to save money for retirement. Contributions to an RRSP, along with the earnings they generate, are allowed to grow tax-free until the money is withdrawn.
Refers to transactions other than in a point-of-sale environment, such as purchases made over the Internet or by phone. Also referred to as card not present transactions.
The process of changing the conditions of your mortgage, loan or other contract before the end of your term.
The process of extending the loan at the end of your term with the same or with a new lender. You can change your mortgage terms and conditions at this time.
Funds that an acquirer requires a merchant to maintain in an account to support the payment card services and manage risk—for example, in the event that the merchant ceased business operations. Minimum balance for the reserve account will depend on such factors as volume of transactions and category of business.
A location where banking services are provided to individuals.
Unlike an ordinary mortgage, which involves payments by the borrower to the lender, a reverse mortgage involves payments by the lender to the borrower. It is an arrangement whereby home owners get cash (usually in the form of monthly payments or a lump sum) in return for a mortgage on their home, which is used as security against the loan. This is a strategy sometimes used by retired home owners who need to supplement their income. A reverse mortgage is one way of tapping into the value of a home.
The potential of losing one’s money or the uncertainty of future returns.
An additional mortgage that is taken out on the same property while you continue to have a first mortgage. You continue to make the payment on the original mortgage as well as the payment on your second mortgage.
Secured credit card
A secured credit card is a card that requires you to pay the issuer a security deposit before you can use it. Your credit limit is normally set as a percentage of your deposit (usually 100 percent or more). For example, if you pay a security deposit of $500, you would normally get a credit limit of $500 or more.
A government agency that administers provincial securities legislation. Examples include the Alberta Securities Commission and the Ontario Securities Commission. To learn more, read Other regulators.
A firm that trades securities for its clients and offers other investment services. Also known as an investment dealer or brokerage house.
A transferable certificate of ownership of an investment product such as a note, bond, stock, futures contract or option. A security can also be defined as “property, which is pledged as collateral for a loan or other credit, and subject to seizure in the event of default.”
A pooled investment fund, much like a mutual fund, established by an insurance company and segregated from the general capital of the company. Its chief distinction from a mutual fund is its guarantee that, regardless of fund performance, at least a minimum percentage of the investor’s payments into the fund will be returned when the fund matures.
Self-regulatory organization (SRO)
An organization that has been given the responsibility and authority to regulate its members. Examples include the Toronto Stock Exchange and the Investment Dealers Association.
Fees established by financial institutions for certain transactions.
Process of adjusting merchants’ accounts to reflect the funds due to them for card transactions. Most acquirers settle the gross amount and collect fees periodically. Settlement can occur on the date of the transactions or up to several days afterwards, depending on the acquirer and the merchant’s financial institution.
Standard charge mortgage
A type of mortgage that is usually registered for the actual amount of your mortgage loan. If you want to switch your existing mortgage to a different lender at the end of your term, it is generally possible to do so by transferring your mortgage. If you want to borrow additional funds, you will likely need to pay fees to discharge your existing mortgage and register a new one. See also: collateral charge mortgage.
Unit of ownership in a company, which is bought and sold on a stock exchange. The terms “share” and “stock” are often used interchangeably.
The marketplace where stocks are traded. Examples are the Toronto Stock Exchange, the Montréal Exchange and the Canadian Venture Exchange.
A company that is legally controlled by another company.
The period of time your mortgage agreement will be in effect, including your interest rate and terms and conditions. At the end of the term, you either pay off the mortgage in full, renew it or possibly renegotiate your mortgage agreement (for example, decrease your amortization period). Terms are generally for six months to 10 years. Not to be confused with the amortization period.
Three-party payment card model
Consists of a cardholder (the customer), a merchant and a financial institution operating a payment card network. Since the same financial institution issues cards to cardholders and acts as the payment processor, there is no need for an interchange fee.
Insurance that provides coverage for losses related to title fraud, survey issues, problems with the title on your property and challenges to the ownership of your home.
Total debt service (TDS) ratio
The percentage of gross income (before deductions such as income tax) required to cover home-related costs, such as mortgage payments, property taxes, heating and 50% of condo fees (if applicable), plus all your other debts, such as credit card payments, car payments, student loans or lines of credit. Generally, the TDS ratio should not be more than 40% of your gross income. See also: gross debt service (GDS) ratio.
Generally, any use of your credit card or credit account, including purchases, payments, cash advances and cash-like transactions.
Treasury bill (T-bill)
A short-term, low-risk investment issued by a federal or provincial government. It is sold in denominations ranging from $1,000 to $1 million, with terms to maturity of one month to a year. The difference between the purchase price and the face amount represents the return to the investor.
An arrangement under which money or other property is held by one person or company (often a trust company) for the benefit of another person or persons. These assets are administered according to the terms of the trust agreement. Each province has a trustee act, which regulates the kinds of investments that can be made by the trustees of a trust fund.
Trust and Loan Companies Act
Federal legislation governing the structure and operation of federally incorporated or registered trust and loan companies in Canada.
A financial institution that operates under either provincial or federal legislation, and conducts activities similar to those of a bank. However, because of its fiduciary role, a trust company can administer estates, trusts, pension plans and agency contracts, which banks cannot do directly.
Services associated with administering and managing a trust on behalf of a client. They can include the establishment of a trust, handling tax issues and distributing assets to the client’s beneficiaries.
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Variable interest rate mortgage
A mortgage with an interest rate that can increase or decrease during the term. The interest rate varies with changes in the market interest rates. The mortgage payments can be fixed, or adjustable (meaning they could change with interest rates), or a combination of both fixed and adjustable payments.
Funds that are invested by a third party in a business venture, as either equity or a form of debt.
Non-legislated guidelines that one or more organizations agree to follow. Also referred to as a “code of conduct” or “code of practice,” it typically outlines service standards that you can expect in dealings with a company subscribing to that code.
Widely held bank
A bank owned by many shareholders, with no individual owner holding sufficient shares to exercise control over the bank. Under the Bank Act, institutions with over $5 billion in equity and Schedule I banks must be “widely held” by the public, with no single shareholder owning more than 20% of any class of voting shares or 30% of any class of non-voting shares.