It’s often the small expenses in life that seem to make our money just disappear. They tend to leave us wondering where exactly our money has gone?
A few dollars here and there certainly doesn’t make or break the budget, so we give less and less consideration to those small expenditures. They don’t seem as impactful, so we don’t scrutinize them the way we do with larger expenses.
Especially as our incomes increase. But like a slow leak in your tire, ignoring the small expenses can result in some serious damage.
Banking fee’s are at the top of the list when it comes to nasty little expenses. They don’t look like much on the surface, but when you start adding them up over the long term, they’re not something you want to ignore.
They are also how the banks try and gouge us for more money, even when they are already making a fortune off most of their clients.
Mike has always taken a strong position that he simply can’t abide paying banking fee’s. To the point where it occasionally gets embarrassing.
But over the years it’s a position that’s worn off on me, and for good reason.
The banks have steadily introduced more and more fee’s. Like slowly boiling a frog in water, they’ve done it so incrementally that the majority of people haven’t even noticed. So tactful they have been about this that most people just consider banking fee’s a standard cost of doing business.
I was absolutely guilty of this, until I met Mike I didn’t even give those fee’s a second thought.
But let’s be honest, by charging a fee to use their bank, they are asking us to pay for the amazing privilege of allowing the bank to make money off us. Yes, they are offering a service, but they were already being well compensated for those services before they started tacking on the endless fee’s.
Whether you hold a mortgage, maintain your investment portfolio, or simply choose to use a banks credit card, they are making thousands and thousands of dollars from you. So why do they nickle and dime us for an extra 10 or 20 bucks a month for a chequings account, or $150 a year for using their credit card, or another $50 if your spouse gets a second card on that account.
Well, albeit irritating, the answer is an obvious one. Those small fees net the banks millions of dollars annually. Millions of dollars over and above all the other products they make billions of dollars on.
The real question isn’t why the banks keep increasing their demand on this cash cow that is fee’s, it’s why are we all still paying them…..willingly?
While the major brick and mortar banks have enjoyed years of captive markets, a number of emerging online based companies are starting to fill the financial space. And those new companies are offering some pretty big incentives in order to capture their share of the market. As a result, the bigger banks are being forced to step up and compete.
With all these new competitors in the market space, it’s a great time to evaluate just how much you are paying annually in banking fee’s. And try to eliminate it completely.
Here’s three simple way’s to get you on your way to banking for free. Or better yet, actually being paid for your business.
1 – Challenge Your Current Bank:
You don’t necessarily have to leave your current financial institute to capitalize on some of the current offers. A small amount of research online to identify what’s available, followed up by a phone call to your own banks loyalty and retention department can make a huge impact on both the fee’s you are currently paying, and the interest rates available to you.
If you’re a valued client, banks will often agree to reduce or eliminate your fee’s in order to keep your business. Despite doing so, they will also often restrict their waiver of fee’s or promotional interest rates to a defined period of time. Maybe 3 months, 6 months, or something of that nature. Their hope is that you are pacified by the temporary offer, and forget all about banking fee’s by the time offer expires. Then you go right back to paying their ridiculous fees.
So if you employ this tactic, it’s definitely an area you need to stay on top of. It’s not just set it and forget it, but it’s also very much worth a ten minute phone call to your bank a couple times a year.
2 – Jump on the Incentive Train
If you are willing to shuffle your banking around a little bit, you can also take advantage of the new client incentives a lot of companies are offering. Not only obtaining fee free accounts and credit cards, but also getting money from the bank just as an incentive for moving your business to them.
In order to be eligible for these incentives you generally have to keep your money with the bank for anywhere from 3-12 months, after which time you are free to move it elsewhere (and take their incentive money with you). So before you sign up with any of these banks, read the fine print for their offers and make sure you are comfortable meeting those terms.
3 – Maintain a Minimum Balance
If you want something that requires even less attention, an excellent option is to capitalize on banks who offer waived fee’s in exchange for keeping a minimum balance in your account. Now lots of people balk at the idea of leaving a chunk of money sitting in an account, accumulating next to zero interest. But, is it really making nothing for you?
Lots of banks start offering waived fee’s on accounts for a minimum balance as low as $1500. When you get to the $5000 range you are generally offered some pretty substantial incentives.
If you have an emergency fund, this can be a great place to keep it (or at least part of it). It’s easily accessible when required, which frankly is an essential component of any emergency fund. And knowing that using the money will bring you back into bank fee territory is an added incentive to stay hands off unless, well, it’s an emergency.
So back to that limited interest argument. Let’s say you decide to maintain a minimum balance of $5000 in your account. For maintaining that minimum balance you should expect to receive waived account fee’s on several accounts. Often the bank will have some sort of VIP account fee that will be waived with that balance. Those full package or “VIP” account fee’s come with all sorts of other goodies, like waived credit card fee’s for both a primary and secondary card holder, free cheques annually, a handful of free bank drafts annually, unlimited transactions, and a free safety deposit box (if those are things that you utilize). If that bank fee is in the range of $20.00 a month, and your credit card with a secondary card is about $200, you’ve already achieved an annual savings of $440.00.
(Before any savings relating to bank drafts, cheques, transaction fee’s etc.) So even at the low end that’s a guaranteed return of nearly 9% on your $5000.
If you are someone who actually uses a safety deposit box, bank drafts, cheques etc, the savings you will harness from those features can quickly add up to nearly a 20% return on your $5000 minimum balance.
Where else can you get a guaranteed 9% return these days, let alone a 20% return??? Not such a bad place to park your emergency fund after all.
Mike and I like to take a hybrid approach to our banking structure, applying a combination of all three of the above tactics.
We call our bank whenever we see an offer that we feel they can match. But if there’s a really great promotion available with one of the newer banks, along with a monetary incentive, we don’t hesitate to move some money around in order to capture those savings. We also maintain a portion of our emergency fund as a minimum balance at our primary institution, which saves us a ton on a number of services we use with them.
All in all, in 2017, by maintaining our minimum balance at our primary bank we saved $810 in account fee’s, credit card fee’s, and cheques. Not bad.
Due to a change in interest rates, it was also more beneficial for us to break our mortgage at the beginning of the year, and move the remaining amount to a home equity line of credit (HELOC), where we subsequently paid off the remaining amount. Even with a small penalty for breaking the final year of the mortgage, with the change in interest rate from the mortgage to the HELOC, we saved an extra $1000 in interest fee’s.
With some negotiating with our bank about current offers in the market, they also waived an $800.00 fee for the legal and assessment costs of registering that HELOC.
On top of that, we took advantage of storing the remainder of our emergency fund with the emerging online based bank, Tangerine. They were offering a high interest savings account to new clients, which is where we elected to store the remainder of our emergency fund. That move netted us just over $1000 of additional interest.
And by taking advantage of some of their new client incentives, they also paid us $450.00 for opening up two accounts, transferring a direct deposit to those accounts for three months, and using their referral code (Mike signed up first, and I used his referral code to earn an extra $50 bucks).
That’s an extra $4060 in 2017 alone. All saved by just investing a small amount of time continually evaluating how our finances were structured and seeing where we could save just a little bit more. And we haven’t even touched on credit card rewards yet! I’ll save that for a whole other post.
There’s no doubt that constantly evaluating your banking needs takes some effort, but realistically we did all of that over a couple bank appointments, and a few evenings throughout the year just checking what was available online, and shuffling some accounts around. And the beauty of technology is we were able to do the majority of it from the comfort of our own home.
From a time invested perspective, it was definitely worth it to save $4060.
What the major banks rely on is that people aren’t going to bother. And for the most part, they are right. Most people don’t bother. Don’t be one of those people. Giving extra money to the banks is almost as bad as paying extra on your taxes. Makes me cringe just thinking about it.