The ins and outs of no-fee banking
Posted on 04-21-2014 09:04
Summary: Competing offers from financial institutions that can defray or eliminate monthly chequing account charges are worth a closer look
How to push back against the rising cost of living: Get your banking for free.
Free banking is no oxymoron. Children and students up to and including university age qualify for it pretty much everywhere, and the rest of us can get it, too. Mind the fine print, though. What you end up with in some cases is nearly free banking, which is still better than paying full freight.
Monthly fees on chequing accounts for financially active people who do lots of debits can range from $10 to almost $30 per month. Eliminate or reduce this cost and you have a way of getting back a little of the money you're losing to higher living costs.
The official inflation rate is low right now, at just over 1 per cent, but hardly a household is immune from higher costs. In Ontario, for example, homes heated with gas supplied by Enbridge face an average monthly cost increase equivalent to roughly $33 per month. Groceries, property taxes and home insurance are other examples of rising costs that are tough to avoid. Free banking won't come close to recouping the money you're losing to higher costs, but it does help.
Now is a good time to consider the state of free banking in Canada for a couple of reasons. For one thing, there's been some competitive jostling between online banking leaders President's Choice Financial and Tangerine, which earlier this month became the new name for ING Direct. Both of these banks offer no-fee chequing accounts.
Among traditional banks, Bank of Montreal recently announced that it is raising the minimum balance that qualifies clients for a waiver of fees in some chequing accounts. For example, it will take a minimum balance of $3,500 to get fees waived in BMO's Performance Plan account starting May 1, up from $3,000.
Got some cash sitting in a savings account? It could be that your money would work harder in a chequing account if it brought your balance up to the level where you qualify for a fee waiver. High-interest savings accounts pay 1 to 1.8 per cent these days. You'll save $13.95 a month if you keep $3,500 in BMO's Performance Plan, which is sort of like a 4.8-per-cent return on your money.
A more extreme example of this kind of savings can be found in TD Canada Trust's All-Inclusive Banking Plan, where the stiff $29.95 monthly fee is waived if you keep a minimum balance of $5,000. That's like a return of a little over 7 per cent.
Do not assume you're getting an entirely free banking experience just because your monthly fee is waived. Take a look at overdraft protection - some banks include this service in their regular monthly account fees, while others charge extra (interest costs are extra). BMO says there's no additional fee for Performance Plan clients who need overdraft protection, while TD's chequing customers can choose between a $4 monthly fee and a pay-as-you go option costing $5 per overdraft.
At Royal Bank of Canada and Canadian Imperial Bank of Commerce, you can get your fees reduced or waived if you use several of the bank's products beyond bank accounts, like credit cards, mortgages and investments products. CIBC's banking bundles offer savings of 30 to 50 per cent off the monthly fees on some accounts, while RBC's multi-product rebates offer partial rebates in some cases and a full waiver of the $10.95 monthly cost of the No Limit Banking account. Note that overdraft protection costs $4 a month on this account (note: Banks charge interest on overdrafts, too).
Free chequing - that's free to all, never mind how much business you bring - is offered by PC Financial, Tangerine and a handful of credit unions, including Coast Capital Savings Credit Union in British Columbia and FirstOntario Credit Union. Again, mind the cost of banking extras.
If you want overdraft protection, FirstOntario's Be Free Chequing Plan charges $2.50 a month. PC Financial charges $4.97 in any month you have an overdraft, while Tangerine Chequing's "Whoops! Protection" covers you for overdrafts of up to $250 if you repay the balance owing within 30 days. If you don't, the cost is $2.50 for every 30 days that any of the overdraft balance is outstanding.
ATM access is a huge factor when dealing with online banks and credit unions offering free chequing. PC Financial clients get free access to CIBC bank machines, Tangerine customers will be able to use Bank of Nova Scotia ATMs (Scotiabank owns Tangerine) starting in June and both FirstOntario and Coast Capital are members of a national ATM network of banks and credit unions called The Exchange (theexchangenetwork.ca).
One final point about free banking: Seniors increasingly get discounts off regular fees, but not free banking. Free accounts for kids and students are safe, right banks?
If you maintain a set minimum balance in your chequing account, some banks will waive or discount your monthly service fees.