It is an unfortunate fact that in today’s modern world, many people are still paying monthly banking fees. These could also include NSF fees, statement fees, and credit line utilization fees. These fees are almost like a poor tax, assessed on accounts whose entire book of business with a financial institution is meager and therefore the bank cannot earn as much interest margin off your deposits. These fees, often, compound on themselves when an individual account meets a cash flow crisis. This situation can also hurt your credit score and standing with the financial institution (they refer to it as character, among the 5 C’s of credit).
How to stop the fee frenzy.
Many financial institutions now offer strictly online or electronic banking accounts which carry no fees (certain conditions may apply). With the pandemic accelerating a shift toward electronic means and remote work, many people are bucking brick-and-mortar institutions for online platforms. As a related bonus: these online banking services often offer market-beating investments (such as GIC’s and high-yield savings accounts), as their overhead is low and thus, they can offer greater rates of return for consumers.
It doesn’t stop there. Many of these online financial institutions are now offering mortgages and no-fee, self-directed investing platforms. The general trend is toward offering just about any banking service you can think of online. There are certain limitations to this, however, as your identity and personal information needs to be verified per financial regulations.
Retain a minimum balance.
Almost every financial institution out there offers accounts where you can maintain a minimum balance to waive the monthly fee. Be careful, though, as any dip below the threshold amount (as dictated by the plan) and you wind up paying the fee at the end of the month. This strategy can often save you hundreds of dollars a year.
Don’t have enough money to achieve the fee waiver balance? Set this up as a goal for yourself and contribute monthly into a savings until you have enough to comfortably put into your chequing account. It is just a smart way to bank.
"Above-plan” or overage charges.
This is a big one. Many personal and business accounts find themselves in a banking plan that does not accommodate the sheer volume of their transaction, resulting in exorbitant fees. The worst part of this: your bank does not care and will not move a finger to let you know about this. First step is to check your account charge summary at the end of each month to ensure that there are no overages on your plan. If you find there is, switch to a higher tiered plan to save money. If you find this to be too expensive, then simply switch some of your purchasing (or the bulk of it) to your credit card. Not only does this lighten the transaction volume on the account, but this way you are actually earning a return on your spending as many credit cards offer cash back incentives.
Automated Teller Machine (ATM) and foreign transaction charges.
A lot of banks charge you if you use your debit card at non-franchised ATM’s (this could include competitor ATM’s or white-label, independent ones). The fee is usually around $3.00 but it is really an unnecessary charge. If your bank does not have a lot of ATM availability in your region, then it could be a sign it does not have the infrastructure required for your daily needs.
If you are traveling and intend on using your debit or credit card, please note that often ATM withdrawals and even simple merchant purchases are costly affairs. Subject to both foreign ATM network charges, as well as currency conversion fees. I would always recommend using a credit card over a debit card for regular purchases, or simply purchase foreign notes at your local bank before your trip to avoid these fees.
Have an authorized overdraft or line of credit?
Authorized overdrafts can be useful if you have multiple payments (bills) debiting your account in the month and you are not sure if you have enough money to meet all those obligations. The overdraft will ensure these payments do not get returned and the account faces NSF charges. The flip side, though, is that often the interest rate to use these overdrafts is like a credit card-–around 19%. My suggestion would be to, again, create a savings account buffer for when you have cash shortfalls. Setup an automatic monthly contribution to a regular or high-yield savings account as an emergency fund. This way you are not paying interest when you don’t have to and you are not relying on the bank to pay your bills (remember, we are aiming toward financial independence).
Lines of credit are a bit different. They can offer a great interest rate (often depending on if it is secured against an asset or insured), and really confer no fees until you decide on using it. A “credit utilization” charge will be in play (along with the interest charge) when you have an active balance on your line of credit. This will stay on the account until the balance reaches zero (be careful, though, as with many institutions the fee itself can constitute a balance and result in additional charges). When you go to pay it off completely, make sure you leave a little bit more in there to cover any pending fees for the month. When you are not using it, simply de-activate the account. No need for a new credit application, though. Just call your bank and tell them you want to use it again.
Statements, cheques, and miscellaneous fees.
Simply switch to online statements (made possible by visiting your individual account preferences in your online or mobile banking). Why issue a cheque, where it can be subject to theft, delays, and material alteration? Consider the use of e-transfers instead. They are instantaneous and secure. If you are being charged other fees that you are not quite sure about, just ask your financial institution. If something is amiss, please point it out to your bank and they should have no problem reimbursing you those charges. It is incumbent on consumers, however, to know what is going on in their accounts and always check your transaction history and statements. Working in the finance industry, I would have people contacting me about fees assessed on an account stretching back years. It is simply not feasible to request a refund going back that far. Pay attention to your accounts!
Have a hard look.
Perhaps it is time to re-evaluate your relationship with your current bank if you feel you are being nickel-and-dimed at every avenue. It can be a time-consuming a tedious process, switching over your accounts, but you can end up saving in the long run. Don’t be tied to a misguided feeling of loyalty if you have been with a bank for several years, or even decades. If they don’t have your best interests in mind, then it is time to cut loose and seek the many alternatives in the marketplace. Be careful, though, as not all financial institutions are created equal. Some may have great infrastructure, and others not so great. It is always advised to do your research on new bank prospects.
Finally, if you are having some reservations about cutting ties with your current financial institution because you know the front-counter lady’s name and she always smiles at you: just remember that banks and credit unions posted record earnings during the height of the pandemic. National governments essentially gave banks money at rock-bottom (unheard of) lending rates, which they extended to consumers with considerable mark-up’s in interest rate and while offering dismal deposit rates–ensuring the spread stayed sweet. Remember to take emotion out of it when it comes to your financial well-being.
The banks don’t really care about your tiny account. They bundle all their deposits in pools to offer loans and try to extend as many products as they can to you (from a credit card to various forms of insurance). You may factor into an algorithm somewhere or a sales figure. They will try to squeeze all of the juice out of you as if you were a orange, to extract the most value. You should view it the same way.
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