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How to Avoid Bank Fees and Save Money

My favourite monthly subscription services is Spotify. I listen to music all the time, especially at work while writing, and have a huge phone data plan (I scored that 10 gig for $60 deal back in December 2017). So having access to unlimited great music and the ability to find artists I never would have otherwise is an amazing value for just $10 a month.

My least favourite monthly subscription was my bank account fee. I’ve long been against having to pay my own money in order to spend my own money – it just makes no sense to me. It gets worse when you consider the value I was getting for my bank account fee. I don’t consider the ability to simply withdraw cash when I need to and pay my bills online as “extra” features, but absolutely mandatory. In Canada you’re basically forced into having a bank account between most jobs paying direct deposit and many companies requiring electronic bill payments. Paying $12.95/month for what I think of as the bare minimum doesn’t sit well with me.

 

Are Bank Accounts With Monthly Fees Worth It?

One thing the Big Banks are catching on to is that simply charging a fee for a regular bank account isn’t going to cut it. Each of the Big Banks has premium chequing accounts that do a lot more than just give you unlimited monthly transactions. They’ll include perks like free cheques, free safety deposit boxes, and even annual fee rebates on their premium credit cards.

These accounts pay no interest but they do waive the monthly fee if you keep a minimum balance in the account at all times. For top-tier accounts, this is usually around $5,000.

I recently had a conversation with someone online who had the TD All-Inclusive bank account. I asked them why they felt needing to keep $5,000 in a bank account that earned 0% interest was worth it. They told that the perks they got from having that account outweighed the money they’d earn in interest on that amount. For reference, $5,000 earning 2.30%* interest with the EQ Bank Savings Plus Account (one of the highest savings account interest rates in Canada) would earn around $10/month. After 5 years, you’d have an extra $608.75. So really that person was paying $120/year to have access to the all-inclusive perks.

*Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice

“That’s no problem,” you might say. “I have more than $5,000 in my emergency fund I can just keep there. I don’t need access to that money all the time.” But if your account ever falls below that minimum amount, you’ll have to pay the whole month’s bank fee. It can be easy to leave $5,000 in an account when you have a healthy emergency fund and you don’t currently have any emergencies, but if you have to withdraw because of an emergency, you’re basically paying $30 on top. And you’d continue to pay $30/month until you’re able to bring your balance back up to that minimum amount.

This is a totally viable option for those with several thousands of dollars in savings, but just isn’t feasible for many Canadians.

 

 

 

Benefit

TD All-Inclusive

Normal costs

Transactions

Unlimited

N/A*

ATM Fees

Free**

$2

Interac e-Transfers®

Unlimited

$1

Safety deposit box

Free small box

$60

Cheques

Free

$25/book of 100

Money orders

Free

$5

Credit card fee rebate

For 1 card

Up to $120

Borderless Plan rebate

$3 US/month

$3.96/month (after exchange)

*It’s usually very easy to stay within normal transaction limits. For those who make additional transactions, the normal cost is $1.25 for each transaction

**TD doesn’t charge you any fees, but the ATM provider still will. Usually costs $1.50 per withdrawal.

If you take all these benefits at face value, it can look like you’re saving a couple hundred dollars a year – especially if you frequently use Interac e-Transfers®. The credit card rebate alone is worth a hefty $120, which is the amount of interest you could earn in a year. So the account pays for itself anyway, right?

That depends entirely on how much you use the associated benefits. Right off the bat, I can tell you there are plenty of free online accounts that include unlimited transactions, no ATM fees, and unlimited Interac e-Transfers®. That’s part of the reason I said earlier that they aren’t “extra” features.

For banks that allow cash withdrawals, Tangerine and the newly launched motusbank both offer unlimited debit transactions and don’t charge a monthly fee. EQ Bank offers unlimited monthly Interac e-Transfers® and is also free, although you aren’t able to withdraw cash.

With great free alternatives already available, I don’t see much value in the Big Banks adding these features to their premium chequing accounts. The argument that keeping all your money in one place is more convenient doesn’t sway me much since it’s so easy nowadays to move money between your accounts from your phone or computer in seconds.

So what the All-Inclusive Account has left to offer are cheques, a safety deposit box, money orders, and the Borderless Plan rebate. If you don’t hold US cash, then you don’t need the rebate (about $50/year).

And how often are you using cheques and money orders? Cheques can be purchased for as little as $25 for 100 cheques from discount online cheque stores – you don’t have to buy them from your institution. Many businesses that accept cheques will also accept online transfers, and even if they don’t 100 cheques will last you a long time.

 

Bank Accounts Without Monthly Fees

There are only a handful of bank accounts without monthly fees at the Big Five banks. Those are usually student, youth or senior accounts, which is fine so long as you’re a student, youth or senior. But if you’re a graduate (or never went to university or college) and haven’t retired yet, you need to shop around to find a no-fee bank account. There are some great alternatives to bank accounts out there if you’re looking for them.

Credit Unions

Credit unions are like banks except with better customer service and lower fees. Unfortunately they have fewer branches than banks do and may not offer all the same products. But for everyday banking, they’ll probably have everything you need.

The reason that they have better customer service is that they’re non-profit organizations. They don’t have to maximize profit like banks do with aggressive promotion against the customer’s best interest. Instead, they focus on your needs and have great rates to boot. Their bank accounts usually have no fees, or require a much lower minimum balance.

 

My $0 Unlimited Banking Setup

Nothing about a premium chequing account can’t be found at one or more institutions. Unless you’re completely dead-set on having just one financial institution, it pays to open a couple different accounts at different places to cover all your needs.

My “main” bank account is with Tangerine. I deposit my pay into a Tangerine chequing account and automatically move set amounts to a few different accounts. Once the automatic transfers are done, I pay off my credit cards, which I use for over 90% of my purchases to maximize my cashback. If I ever need cash, Tangerine uses Scotiabank’s ATMs which have a very wide coverage.

All my monthly bills that need to be paid by direct bank transfer, like car insurance, come out of that chequing account as well. Once my credit card is paid off I double check that I have enough money to cover the bills that are coming before next payday. If I have more than enough, I transfer more money into savings accounts with specific goals, like a new pair of shoes or my travel fund. In the rare event I don’t have enough money, I transfer some out of my savings.

All my savings accounts are with EQ Bank. Yes, I did say all. EQ Bank allows you to have up to 5 separate Savings Plus Accounts, each with their own nickname and savings goal. It’s perfect for keeping track of specific goals while earning high interest.

For example, I recently had an account I nicknamed “New Shoes” with a goal of $100. Once I reached that goal, I purchased the shoes on my credit card. Since EQ Bank allows for unlimited bill payments, I then scheduled a payment from that account directly to my credit card. I get to keep earning interest on that saved amount until my credit card statement is due and it will automatically pay itself!

My TFSA is with motusbank, which has one of the highest interest rates for TFSAs at 2.50%. I don’t like to use my TFSA as often as my EQ Bank accounts because of the hassle of tracking TFSA withdrawals, so that’s reserved for longer-term goals like a down payment for a house.

This might sound complicated at first, but it really only takes a few minutes every two weeks. Most of the transfers are done automatically.


Chris Chris 04/11/2019
Canadian personal finance buff and all-around writing enthusiast, Chris loves breaking down complicated money ideas to show that they're really not so complex. 
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