I like doing business with my bank, and when Rom arrived in Canada, I recommended he deal with them too. Recently, however, he’s been getting better services and products than I have! What gives?
The answer: Although I review my investments with an advisor once a year, I had not reviewed my basic banking since I set up my accounts in 2002. My spending and savings habits have changed a lot since then. So have the options offered by the bank. I am a little disappointed that my advisor at the bank never thought to (or chose not to) review my basic banking with me. It’s kind of like Internet and cable service providers – it’s only when you threaten to cut your service that they offer you a better deal! In my case, I compared all the products on their web site and made an appointment to get them all changed. Over all, I really do like both my financial advisor and my bank. I use two branches where the staff know me, and go out of their way to serve me well. Therefore, I didn’t shop around to all the major banks. I just need to stay informed and not go with the defaults. In an ideal world, their customer service would be more proactive.
Here’s a rundown of my accounts with Scotiabank. For readers outside Canada, you may not recognize the account types and investment vehicles, but you’ll see my attempts to reduce fees and increase yields! For Canadian readers, my aim is not to promote my bank (this is not a sponsored post) but to promote consumer education.
Chequing Account Change: from Power Chequing to Scotia One
Chequing Account / BEFORE: There was an ever-changing minimum balance to waive the monthly fee; limited free transactions per month; and any transactions over the limit had a fee of $0.90 each. This account type is obsolete and is no longer offered to new customers, which is why Rom was offered a new account type before I was!
I appreciated a no-fee account, but the number of free transactions was so limited that I went to all-cash spending to avoid using my debit card.
Chequing Account / AFTER: The choices were a rewards/points program, a cash-back program at 1% (capped at $300/year), or a no-fee account. I chose the latter – with a minimum balance of $3500, the monthly fee of $12.95 is waived, and there is no limit on the number of transactions.
I keep at least this amount in my chequing account as savings toward insurance, vacations and gifts, so this was a no-brainer. My account is now completely fee-free and I can use my debit card any time.
Savings Account Change: from Power Savings to Momentum Savings
Savings Account / BEFORE: Again, I maintained a high enough balance to receive monthly interest. The interest rate kept going down until it was negligible despite the high balance. It is currently 0.4% for balances over $5000.
With a balance in the thousands for this Emergency Fund, it seemed foolish to let it sit there with so low a rate.
Savings Account / AFTER: The choice was my old account type, which allowed unlimited no-fee withdrawals and had the 0.4% interest rate, or an account with a 0.75% interest rate, with another 0.75% bonus for each 90-day period with no withdrawals. By changing over, I raised my interest rate from 0.4% to 1.5%.
I have to decide how “untouchable” this money should be. Ultimately, losing the 0.75% bonus probably won’t be a significant factor if I have an emergency expense to pay. All the interest on this account is taxable. I put the allowable maximum into my TFSA (see below) and only keep the excess in a taxable account.
I had two products inside my TFSA (Tax-Free Savings Account): cash and GICs (Guaranteed Investment Certificates). As the balance grew, I had to decide whether to make higher-risk investments inside the TFSA. As the name says, all the growth inside the TFSA is tax-free.
TFSA Change: from free (unassigned) cash and GICs to Savings Accelerator Account
TFSA Cash / BEFORE: Like the savings account, cash in the TFSA earned only 0.4%.
Meanwhile my investments in mutual funds last year earned 3.4% and 4.6% after management fees.
TFSA Cash/ AFTER: Instead of holding free cash in my TFSA at 0.4%, I opened a savings account inside the TFSA, which earns 0.9-1.0%, the best rate available at my bank for cash within a TFSA. (There is a temporary rate of 1.5% for 3 months).
GICs (Guaranteed Investment Certificates) / BEFORE: This is a safe, low-yield investment inside the TFSA. They are available in terms of 6 months to 5 years. As with everything else, the rates kept going down, and most recently, I had to lock in at 18 months to get just 1.5%.
GICs / AFTER: My one remaining GIC is locked in until May, so I will need to make a reinvestment decision then, or leave it in cash. Since the rate will be 1% if I just stick it into savings, there is no point in getting another GIC – the 18-month rate has now gone down to 0.95%!
NEW: I took a risk and invested a chunk of TFSA money in products with risk. My retirement funds are in mutual funds and they have performed well over a 10+ year period, so I decided to take a chance. Kerpow! Between December and January, the stock market took a big dive and I lost 6.7% of the principal on that portion of my TFSA! Luckily I didn’t put all my eggs in one basket. Meanwhile, I had decided to put an amount of “play money” into a trading account so I could experiment with buying ETFs (Exchange Traded Funds). Because of market performance, I haven’t made any trades. So I haven’t lost anything on that portion yet! Logically, when the market is low, it’s the right time to buy. Sure doesn’t “feel” right, though.
Finally, I made a credit card change.
Credit Card Change: Scotia No-Fee Visa to Momentum Infinite Visa
Credit Card / BEFORE: I had a no-fee card and paid off the balance every month. The card had no perks.
Credit Card / AFTER: I qualified for a cash-back Visa card that refunds 4% on groceries and gas, 2% on drugstore purchases and recurring bill payments, and 1% on everything else. It has an annual fee of $99 (first year refunded) and $30 for a second card for Rom. There are additional perks such as travel insurance and car rental discounts.
The new credit card is the biggest change for me. It now pays to use the credit card for everything, to get the cash back. Since I never carry a balance, this is not an evil temptation for me. I have had to read the fine print and do a lot of calculations. The refund level depends on the “merchant code” of the store I buy from. For example, Sobey’s and Superstore use the merchant code for grocery stores and qualify for 4% back. Wal-Mart is not classed as a grocery store and so only qualifies for 1% cash back. If the groceries at Sobey’s and Superstore cost a few percentage points more than Wal-Mart, I am not saving any money, and I should not allow myself to be lured by the cash back. I have started a new Price Book, and I now stock up on non-perishable groceries at the lowest price of all the stores in our area. I continue to buy what makes sense at Costco and our local produce market, neither of which takes Visa. I will also have to be careful when I travel, and check what exchange rate I am getting if I use the card (as with any credit card). Incidentally, I had to be very deliberate about turning down the credit insurance, which I don’t need.
One thing I am considering is buying gift cards for other stores while I am at the grocery store. Everything purchased in a grocery store qualifies for the 4%, not just food. So I could buy gift certificates to clothing stores, hardware stores, restaurants and so on. However, I will only buy them when I specifically need them, and not stock up in anticipation!
I trust myself to keep things in perspective. For example, If I purchase airfares for $1000, I will get $10 cash back. That is $10 I wouldn’t have earned on my old card, but not enough to make me go silly with unnecessary spending. There will be no problem accumulating benefits far in excess of the annual fee, but how much remains to be seen.
Well, at this point it seems that all of my efforts will only help to compensate a little for my mutual fund losses! Perhaps by year-end, things will have turned around. If not, I suppose I am getting a little more interest, and lower fees, on all the rest.
Do you review your bank services? Have you changed banks (or credit unions)? Or do you use a mix of products from local and online banking services?