Personal Finance

Want to switch banks or investment firms? Here's what you need to know.
By Gail Bebee | 11/12/15

"Free iPad Mini 2 when you open a new bank account."

About the Author
Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

"Open a new direct investing account and trade free all year plus get $200 cash."

It seems there is always at least one Canadian bank or investment firm launching a new promotion in an attempt to attract more business.

Such deals can be tempting, but not every promotion is worthwhile. In fact, some could prove quite costly. Consider the two promotions mentioned above, for example.

The iPad Mini 2 featured in the bank promotion is an older product. Versions 3 and 4 have already been released. To qualify for the iPad, a payroll or pension direct deposit, or two pre-authorized payments, must be set up. Fees for the new account will be at least $14.95 per month.

To qualify for the investment-account offer of cash and free trades, you must transfer assets worth at least $100,000 into the new account, and leave the funds there for at least six months after the deal ends.

Clearly, researching an account promotion before signing up is prudent.

If you decide to pursue a promotion, ask the offering financial institution for assistance in opening the account. This should expedite the process and reduce errors. My personal preference is to meet with a real person. If you apply online, check the frequently asked questions (FAQs) on the website and ask the firm's call-centre staff for tips on avoiding errors during the application process.

Opening a new bank account can be as simple as completing an application form and providing a cheque or direct deposit drawn from an existing account. Transferring an account, especially a chequing account, from another financial institution is more complicated.

Most chequing accounts are set up to process various recurring transactions automatically. On the credit side of the ledger, this could include pay, a pension, child-care benefits or investment income. On the debit side, there could be pre-authorized payments for such ongoing expenses as a mortgage, auto and home insurance, utility bills, car payments, subscriptions and gym memberships.

If the deposit transactions have moved to the new account, but some payments have not, or vice versa, you could face bank charges for insufficient funds.

To avoid such costs, there is work to do before applying for a new chequing account. First, review your account statements and cheque-writing records, and make a list of all automated transactions and any post-dated cheques. Familiarize yourself with the transfer process and policies applicable to your existing and new accounts.

For each direct deposit, contact the depositor to find out how to change your account information. Complete the steps required, and confirm the date when the direct deposit will transfer to your new account.

For each automatic payment, contact the payee to determine the process for updating account information and the time needed to implement a request. Arrange for the effective date to debit the new account to occur only after direct deposit(s) are flowing into that account.

Leave enough money in the old account to cover any outstanding cheques or debits and any automatic payments that have not yet transferred to the new account.

When an automatic transaction arrives in your new account, confirm that it is no longer linked to the old account. Close the old account once all automatic transactions are clearing through your new account, and there are no cheques or other debits outstanding.

Some financial institutions have tools in place to simplify the transfer process. For example, Tangerine Bank's online Switch Assistant allows a new client to select the payroll direct deposits, pre-authorized payments and bill payees in her existing account and set up the transfer to the new account. If a transferred pre-authorized payment arrives slightly ahead of a transferred direct deposit, new clients are alerted and have a short grace period before the payment is made.

There are several steps to take before opening a new investment account and transferring an existing account.

You will need to determine the transfer-out fees charged by your existing broker. The fees vary by broker and will be debited to your old account. Make sure to leave sufficient cash in that account to pay these fees or the transfer may be delayed.

Ask the new broker to reimburse the transfer fees; most will do so in order to get your business. Also, request that she review your existing holdings to flag any investments such as proprietary funds and certain guaranteed investment certificates that are not transferrable. These should be sold before the transfer begins. Note that it may not be possible to sell all non-transferrable assets immediately. For example, a GIC may have to remain in the old account until maturity and the cash proceeds transferred afterward.

If you receive income from a systematic withdrawal plan (SWP) linked to your old account, review your cash flow and ensure you have funds available to cover all expenses until the SWP is operational in the new account.

Review your holdings and identify the ones you plan to sell. Since cash transfers quickly, you may want to sell these investments before the transfer.

Check that you have all the monthly statements and other documents you require for the existing investment account. If you access these records online via the brokerage's website, download all the relevant documents.

You are now ready to apply for the new investment account. As with new bank accounts, seeking assistance from the new financial institution should expedite the account set-up. During this process, you will complete a form that authorizes the transfer of your old account to the new broker. This transfer generally occurs within two weeks, but certain investments could take longer. Monitor your account statements to confirm that all the investments and any associated dividends or distributions arrive in your new account.

The final steps to transfer an investment account are to arrange for any automatic direct deposits to be transferred, and to set up any automatic transactions such as SWPs and dividend reinvestment plans.

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