Nothing makes me happier than avoiding a bank fee. I know, super weird right?
But let’s look at the numbers. The average Canadian in 2012 (sorry, it’s the most recent number I could find) paid $185 per year in banking fees. And remember, that’s 2012 numbers which do not include the outrageous increases we’ve seen over the 5 years since.
If you’re an average Canadian with a standard account, there are literally fees for everything involving accessing your own money, including:
Paper account statements
Account maintenance fees
Account transfers between institutions
Withdrawal fees on registered accounts
Transaction number limits
And this is not an exhaustive list.
I also don’t want to completely rail on all the fees, because some are legitimate: Interac isn’t owned by any one bank so, yeah, sometimes it may be reasonable to charge you 50 cents for an e-transfer. And if you want a safety deposit box, well, yeah, you should probably pay for that tiny metal box of real estate, too.
So this is not precisely full-blown theft: like all companies, banks have rent to pay, workers to retain, apps to develop, and shareholders to report to. They have to generate money somehow from their retail customers. And customers who use their services ought to pay for some of them.
But considering banks generate billions upon billions year over year while you don’t, I argue that with a little effort, we can extract the most value from our banks by keeping fees to a minimum. This post is not to encourage cash hoarding to avoid fees all together, but just asking you to be smart about it.
So without further adieu, here is my structured rant to promote a culture of bank fee avoidance in all of you. I’ve stuck with the major ones and avoided the obvious ones (like paper account statements because I assume everyone knows how to get those online?).
Account Maintenance Fees
These fees usually range anywhere from $4.00 to $30.00 per month and can be waived by holding minimum account balances of $2000 to $6000(!). If you have accumulated wealth, you might think to yourself: “$6000 isn’t so bad because I get all these great benefits!”, but assuming 7% average return of a standard indexed ETF, you are losing $420 of potential investment income because your $6000 is dead money. It’s just sitting there, rotting away to the powers of inflation. To illustrate: if we assume a target inflationary rate of 2%, that $6000 becomes worth less than $5000 in 10 years. So sure, you’re “saving” on the bank fee… but are you really?
Still, I’m a firm believer that banks with branches are a necessity, especially as you start to accumulate wealth, so if you have accounts across different banks that carry account minimums, my advice is to consolidate and stick with one central retail bank account to free up some of that dead money.
On top of that, consider having your secondary bank account be with an online bank, like Tangerine (also: if you open one, use my Orange Key of 45253222S1 because we’ll both get a cash referral bonus) or EQ Bank. Either of those options will ditch the account minimum and offer you an interest rate in the range of 0.15% – 2.3%, depending on your online banking needs. Not bad, huh?
I should warn that some of these big branch accounts with their minimum balances aren’t that bad of a deal, but they only make sense if you use all the features available to you (which means actually using up to your transaction limit, getting access to a good credit card you actually use, sending frequent money orders/e-transfers, etc.).
In other words, if your bank is asking for a $6000 account minimum, see if you can justify the $420 opportunity cost first. If you find the value you are extracting to be less than the opportunity cost (simply multiply 0.07 by the account minimum requirement), consider closing shop or downgrading.
- Track the number of transactions you use per month and what banking services you are actually using.
- Consolidate banks if you have more than one account minimum across multiple banks.
- Consider online banks.
- Research the offerings of competing banks and find the one that fits your needs (i.e. some offer pay as you go banking for minimalists).
- Hold more than one account with minimum balances.
- Pointlessly upgrade for that free credit card tied to your premium account unless that card is actually something special and is aligned with your spending habits (i.e. don’t get a travel card if you don’t like travel). Opening and closing a credit card will probably damage your credit score.
- Pay for any account fee over $5.00 (just a personal suggestion).
Cheques, Money Orders, Bank Drafts, Certified Cheques
These fees are usually $7.50 for those one time payments (drafts, orders, certified cheques) and $50.00 for the chequebooks. And they are basically a kick in the pants because it’s an added expense to pay someone you now owe.
If you can’t stomach sucking it up and paying the fee and have some financial leverage at your disposal, you can lie barter with the teller along the lines of:
“I have $5000 available in another online account to upgrade to the premium account, where all these services are free. My plan is to upgrade, get my bank draft, and then downgrade my plan again. Or… you can save me all that trouble and just cover the cost for me.”
I don’t write many bank drafts, but I have done this successfully twice. If they do give you a hard time and you actually have that financial leverage, literally proceed with the actions of temporarily depositing more money to upgrade your account, getting your free thing, and then downgrading immediately after.
- Negotiate with tellers on getting things for free.
- Write cheques if you don’t have to. Online banking has removed the necessity for them.
- Waste cheques. Direct deposit authorization forms can be obtained free of charge from your bank and void cheques can even downloaded online nowadays.
Registered Account Transfers between Banks
If you are dissatisfied with your RRSP or TFSA at your current banking institution, moving your funds to another bank without triggering a withdrawal and affecting your contribution room can be costly. In fact, for the big five banks, it’s usually in the $150 range because, ye know, all the onerous paperwork they have to do.
Similar to #2, you can barter with a financial advisor at the institution you want to transfer to along the lines of:
“I’m thinking of moving banks, not sure if I want to move to your bank though because of all the exit fees of transferring institutions.”
It doesn’t hurt to bait them in thinking you want one of their mutual funds because advisors love commissions. Speaking from experience, I did this recently and got the receiving institution to cover all transfer costs.
- Your research on fees like account maintenance, withdrawal, and transfer fees before even opening a registered account.
- Understand each bank’s investment offerings before transferring. For instance, TD offers its e-series index funds, which are low cost with good returns, whereas Tangerine offers a complete one fund solution for index investors but with higher fees.
- Fall for the sexy sign-up bonuses or interest rates. Some banks’ interest rates are very temporary and will require account minimums as high as $15,000 to avoid maintenance fees. Plus, transferring registered accounts to different banks is time consuming and can be costly.
So there you have it: welcome to my culture of bank fee avoidance! Do you have dead money sitting there? Get it outta there!