Personal Finance

Cost isn't the only consideration.
By Gail Bebee | 27/05/13

It's next to impossible to survive in the 21st century without a bank account. Canada's major banks know this, and price their retail banking services accordingly. A premium account -- a bundle of services including unlimited transactions and "free" automated banking machine (ABM) withdrawals -- will set you back $25 to $30 per month at one of the big banks. A basic savings account pays less than 0.5% interest.

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.

With such pricing, reviewing your current banking situation could put more money in your pocket and simplify your finances. How many bank accounts do you really need and what should you pay for them?

Banking requirements for the average Canadian can be slotted into four broad buckets:

1. Deposit pay cheques and other sources of income.

2. Pay expenses: cheques, debits, transfers or withdrawals.

3. Emergency fund.

4. Savings for buying a home, retirement, children's education or other specific goals.

A single chequing account will take care of buckets one and two. A second account at a different bank will ensure you have money available even if one of the banks has computer-system problems. If spouses manage their finances separately, each partner will need an account and the couple may want a joint account for common expenses.

A chequing account is the fundamental tool for managing your personal finances. In deciding where to bank, cost isn't the only consideration. Also important are chequing and other features, ease of use, a low hassle factor, handy ABM locations and excellent customer service. On these counts, it is hard to beat one of the Big Five banks. However, other financial institutions -- the smaller banks, credit unions and caisses populaires -- may have equivalent or better account offerings at lower costs.

Online search tools make finding the right chequing account relatively easy. Before conducting a search, review past bank statements to determine your average number of transactions per month (cheques, debits, in-bank transactions, ABM and automatic withdrawals etc.) and the minimum account balance you normally maintain. Review your spending habits to figure out the features, services and the number of accounts you need. Keep in mind that special services like overdraft protection and lines of credit may reduce your account choice and increase costs.

The Banking Package Selector Tool developed by the Financial Consumer Agency of Canada (FCAC) has a database of the chequing-account packages offered by most of the large and small banks and credit unions in Canada.

Two low-cost, comprehensive chequing accounts stood out when the tool was tested using various transaction and service combinations to search for an account with a minimum balance requirement of under $1,000.

The ING Direct THRiVE Chequing account and the President's Choice Financial no-fee bank account both offer free chequing, unlimited transactions, telephone and email support, a modicum of interest and no monthly fee. Bank drafts and e-transfers are available for an extra charge.

These bank accounts are suitable for customers who bank by ABM, Internet or telephone, never need to visit a bank branch and don't mind electronic account statements. The ING Direct account package includes overdraft protection and email alerts. PC Financial offers free cheques, a loyalty rewards program, the option of paper statements (for an additional fee) and a more convenient ABM network.

Chequing-account packages at financial institutions that offer in-branch banking charge monthly fees of $4 or more, depending on the number of transactions and services included. A no-fee chequing account may be available if you maintain a minimum account balance ($1,000 or higher) or do other business with the bank. Seniors or students, if they inquire, may qualify for lower-fee accounts.

Emergency funds should be held in a dedicated savings account that is easily accessible. This account should be used only for unexpected but necessary expenses such as replacing a broken-down furnace, or, if you are unemployed, paying the bills while you hunt for a new job. A high-interest savings account is the ideal place for such funds, and usually it's smaller institutions that pay the most.

 Morningstar's Savings & GIC Rate Tool reports that Home Trust (1.8%), MonCana Bank of Canada (1.75%) and Effort Trust (also 1.75%) currently offer the highest interest rates. Don't be fooled by the high rates some banks advertise for new accounts. These teaser rates usually last only a few months, and the regular rate may not be competitive.

A separate account for each major savings goal is a useful budgeting tool, though these won't necessarily all be bank accounts. Every adult should have a tax-free savings account (TFSA). This could serve as the aforementioned emergency fund, or the place to save for a specific goal. Some of your savings might also be held in an RRSP or registered education savings plan (RESP). The number and types of accounts, and types of deposits or securities held, will depend on your personal goals, risk tolerance and time horizon.

Having accounts at more than one financial institution can complicate your finances. However, there are tools available that reduce the hassle. For example, mint.com, a free online budgeting tool, lets you track multiple accounts from different banks in one place and automatically updates your information every night.

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