Banking for Canadians at US OD schools

[jefguth]

Banking for Canadians at US OD schools

For the benefit of all my fellow canucks headed to optometry school in the USA this fall I though I’d share some of what I’ve learned about managing money in another country.


Checking Accounts:

If you live in close proximity to the border you may find it helpful to open an account before you head off to school. Unfortunately, the US banks that I have looked at will not allow you to open a checking account online. That’s okay though, because you will want to select a bank that has locations and ATM’s in close proximity to where you will be living and attending school – helps to avoid unnecessary fees. Unlike the big Canadian banks, US banks tend to me more regional and less widely distributed so you’re not always guaranteed to find an ATM near you (there area few exceptions of course).

You’ll find there are plenty of institutions offering free checking (err chequing) accounts to choose from once you start looking. These accounts typically come with what is called a “Visa (or Mastercard) Debit Card.” These are not credit cards in the traditional sense: While they allow you to make purchases like you would with a credit card (online buying, signing…) they actually function the same as the interact debit cards you are accustomed too and have no influence on your credit rating.

Social Security Number:

Eventually you will want to get one of these. The SSN card serves the same function as a Canadian SIN, it is the number that identifies you for the purpose of employment and credit history.

How do you get one? Good question, the process is a little convoluted. First you must get a job offer from some one. Sounds pretty bleak, eh? Well not so, you should have no trouble getting a job on campus, and even if you don’t want/need a job you 1st few months of optometry school all you need to do is get a job offer in writing from your school. Second fill out the necessary forms, head to the SS agency office, and finally wait for you card to arrive in the mail.

What do you need your SSN for? US taxes returns, credit card applications, getting approved to rent an apartment, getting a cell phone plan, and sometimes opening an account with utility companies.

US Credit Cards:

Now that you have your SSN you are all ready to start applying for a US Credit Card. Why do I need a credit card form a US bank you ask? Well, because using you Canadian credit cards in the US can be a little expensive (they can charge you a 2.5%+ currency exchange fee on top of giving you not so wonderful exchange rates) and they don’t help you build a credit history in the USA. Also, some optometry schools will allow you to pay your tuition by credit card; if you can get a card with decent rewards (cashback, airmiles, etc.) you could either save a little money or get some free travel (hey those flights to Canada can be pricey!).

That brings me to another point, Canadian credit history doesn’t mean much at all in the US unless you can find a really helpful someone at a US bank, so actually getting a credit card in the US can be very difficult. However, HSBC USA will apparently help HSBC existing HSBC customers from other countries with this. (http://www.us.hsbc.com/1/2/3/international-services/student)

Here are my suggestions:
1. Don’t apply to very many cards at one time – the credit card companies see this as a very bad sign.
2. Don’t 1st apply to cards that require a good and long credit history (those will attractive rewards programs) because you won’t have any credit history and the multiple applications will only look bad
3. Quite a few Canadians I know, including myself, had luck applying for student cards with Citi Cards (www.citicards.com)
4. US credit card companies will only issue cards to US citizens and residents….I trust you all know what to do with the checkbox that?

Canadian Credit Cards:

As I mentioned above, you bank could charge a lot of extra fees to your card if you use it a lot in the US. However, most Canadian banks offer US Dollar credit cards that could be especially helpful if your school accepts tuition payments by credit card. This RBC card (http://www.rbcroyalbank.com/cards/personal/gold_us.html) looks like it would be a good one if plan to pay your tuition this way. Otherwise the $65 annual fee might eat up all your reward points.

Foreign Exchange:

The great news is that the Canadian dollar continues to sit at pretty high levels relative to the USD. However, finding an inexpensive and easy way to convert your funds can be difficult. My favorite is an online service called Vantage by Custom House (http://www.customhouse.com/services/chOnline/forPersonal.htm) or the identical www.xe.com/fx which allow you to exchange between CAD and USD without any commissions, while transferring the funds from a CAD account to a USD account or vice versa again without and fees and processing time from initiation to delivery of funds of just a few days. Both services have online demos to show you how its works I suggest having a good look. I’ve so far managed to transfer a lot of money this way without any problems.

Savings Accounts:

Depending on how you are financing your education you may find large amount of cash sitting in your checking account from time to time. Don’t let it just sit there – make it work for you! There are a number of online savings accounts that will give you a great rate and you always have access to your money when you need it. ING direct (http://home.ingdirect.com/) is probably the most familiar to Canadians, relatively hassle free and currently pays 4.266% per annum. www.HSBCdirect.com offers 4.95% per annum but restricts you to 6 electronic interbank transfers per month (which shouldn’t be a problem) but has unlimited ATM withdraws (the catch is that they don’t have many ATM’s in the US).


I hope this sloppy and not so brief summary was of help to at least someone, feel free to ask further questions or clarifications and try to enjoy what’s left of your summer!

---

Members don't see this ad.

 

[hopeful_opt]

Hi Jefguth,

Thanks for all that info. I'm a canadian student looking to apply to american schools in the fall. But I was wondering if you know how most students (who don't have $200,000 saved up) pay for schooling (ie. what type of loans, scholarships (if any), etc...)

thanks

 

[jefguth]

Most students use the professional lines of credit offered by most Canadian banks in combination with loans from a provider called CanHELP. You will also be eligable for Canada Student Loans and depending on your province of residence the provincial student loan programs. I know for sure Ontario residents are not able to get the provincial portion for foreign schools, but are still eligable for the federal portion (that should give you ~$7000/yr CAD). The only other province i know about is Alberta; they will give you the provincial portion and you should be able to get a total of ~$14000 - i think. Remember, after you've been out of HS for at least 4 years your parents' financial info is no longer counted in the application process.

I have also heard of some students who have financed their education by having their parents take out home-equity loans against their house. They can probably get a better rate doing it this way.

Finally, if you have intentions of returning to Canada to practice then you can take advantage of the tuition tax-credit. Basically you will save ~16% of what you've spent on tuiton + some living allowances on your federal income taxes one you start having an income.

Unfotunately this isn't an area I know much about, hopefully someone else can provide more detail?

Best of luck!!

 

[SomeGuy]

Finally, if you have intentions of returning to Canada to practice then you can take advantage of the tuition tax-credit. Basically you will save ~16% of what you've spent on tuiton + some living allowances on your federal income taxes one you start having an income.

Or you can transfer this credit to a parent/guardian and have them write you a cheque for their savings. Better to get the money while you're paying loan interest than to get the money when you're pulling down an income.

This is especially true given the fact that there seems to be a downward trend in tax rates with the change in government (ie: you get more money back if the tax rate is 17% vs. 15.5%).

 

[jefguth]

Or you can transfer this credit to a parent/guardian and have them write you a cheque for their savings. Better to get the money while you're paying loan interest than to get the money when you're pulling down an income.

This is especially true given the fact that there seems to be a downward trend in tax rates with the change in government (ie: you get more money back if the tax rate is 17% vs. 15.5%).

Great point!

The only problem is that you can only transfer about $5000 of the tax credit to a parent in a given tax year, leaving your parents/you with a tax savings of $800. Still a fair amount of money to be saved for sure though.

Now if you really wanted to take advantage of the credit now, and lets say your parents were paying your way with their very sizable income, then it might be possible to have your parents pay you an income (income splitting strategy) of say $40,000 (give or take a few thousand since i'm estimating here with a $24,000 total tuition tax credit) which you, nor your parents wouldn't pay any 2006 income taxes on.

1st 16,000 = basic personal exemption = no tax
remaining 24,000 taxed at 15.5% (i think) = $3720 in fed taxes - $3720 tuition tax credit = $0 NET Fed income tax

btw i'm not, nor have i ever been, certified to give tax advice so the above may just be an exercise in fantasy

 

[SomeGuy]

There is no fixed limit of how much you can transfer. The only limitation is that you can only transfer what you cannot use in that year. So, in other words, you can transfer (your income - basic deduction). I'm speaking for Ontario here, not anywhere else. Perhaps you made more than the basic exemption, and were therefore limited from how much you could transfer? Its all a wash in the end anyway.

Income splitting isn't so easy. It has to be for a bona fide reason. For example, your parents can pay you if you work for their company and they can claim it as an expense, but they can't pay you to take out the household garbage every week and claim that as an expense.

One smart thing your parents could do is give you a gift (tax free in Canada) for all of your X years of tuition/expenses, then you can invest it in your name at a lower tax rate until you need it. I _think_ that's okay. This of course assumes you won't be getting aid of any sort.

 

[jefguth]

There is no fixed limit of how much you can transfer. The only limitation is that you can only transfer what you cannot use in that year. So, in other words, you can transfer (your income - basic deduction). I'm speaking for Ontario here, not anywhere else. Perhaps you made more than the basic exemption, and were therefore limited from how much you could transfer? Its all a wash in the end anyway.

If you look at line 17 of schedule 11 (the line where you enter your education amount for the year) it says to enter the amount or "if it is more than $5,000, enter $5,000." If you are not claiming any of the amount yourself in the tax year and your amounts excede $5,000 then the max that can be transferred is $5,000. The transferable amount will decreases when you have an income greater than the basic exemption and therefore start paying taxes yourself, making you eligable to claim part of the tuition+education amount in the given tax year.

I had about $30,000 in available credits for 2005, and an income below the basic exemption - the max transferable was $5,000 b/c of the condition on line 17.

 

[SomeGuy]

Indeed you are correct. Interestingly, Ontario's max transferrable amount doesn't equal the federal limit.

 

[jefguth]

Indeed you are correct. Interestingly, Ontario's max transferrable amount doesn't equal the federal limit.

I noticed that too after getting my documents reading to be reviewed by CRA - I don't know why but the provincial (ON) amount transferred was about $600 more than the federal.