The Loans Canada team sits down with Gary Schwartz of the Canadian Lenders Association to talk about open banking.
The Secrets Your Bank Doesn’t Want You to Know
Loans Canada: The Country's Best Loan Comparison Platform
In Canada, there are a number of major banking institutions. Some of these banks (such as TD or RBC) charge monthly fees to open accounts with them, while others (such as Tangerine) offer free accounts following a base initiation cost. However, no matter what bank you’re with now or are thinking of joining in the future, they might be keeping some secrets that you’d be interested to know.
Here are a few banking tips for the 20-something.
As we said, the first thing to realize about banks is that they are out to make money, like any other business. While they might claim to favor you for being a loyal or creditworthy client, always take that claim with a grain of salt. You are just one client among millions of others in Canada alone. They can’t really treat you differently just because you keep a healthy bank account balance and pay your credit card bills on time. Sure, you may receive the odd benefit for being with them a certain number of years but, for the most part, you are just a number on a spreadsheet. They won’t hesitate to charge a penalty if you make a late payment or drop you as a client if you don’t meet their requirements in some other way. Don’t let your banker sweet-talk you into an account or product that you don’t really need or uncomfortable using.
Looking for more information about credit scores and how they’re calculated? Click here.
Joining and Leaving
Did you know that you can often receive more benefits as a new client than one that’s been at a bank for years? Banks will try to convince you that you’ll be losing out when you switch to another institution. While doing so can be somewhat annoying and may cost you a fee for transferring, there are ways you can alleviate the situation. Your new bank could even be open to a bit of negotiation. For instance, you can ask them to waive the transfer fee in exchange for you becoming a new client. If you look hard enough, some banks might even throw in a free touch-screen tablet, credit card, or another kind of promotional gift, so make sure to shop around, rather than going with the first institution you come across.
Ask yourself (or your banker) questions like these:
- Are you comfortable with banking that’s done almost exclusively online, which is common with free banking?
- Do you prefer having more frequent access to ATMs, physical cash and the over-the-counter banking style of big banks, such as TD or RBC?
- What will your old/new bank charge to transfer or close an account?
- Are there other hidden fees that your bank might charge? Overdraft fees? Administrative fees? Service charges? Cheque fees?
- Will it cost you extra to use your debit or credit card in another country?
- What are their exchange rates if you want to withdraw foreign currency? Are they better than using a specialty money exchanging location?
Consider this before you start shopping for low-interest rates.
Another thing that banks don’t often tell you is that they have a variety of account types, all of which cost different monthly fees (unless you’re using free banking). When you join, they may automatically sign you up for their “premium” account without giving you all the details. Of course, the premium account comes with all sorts of incentives, such as a free safety-deposit box, unlimited transactions, free specialty credit cards that would otherwise cost yearly fees, etc. Unfortunately, these accounts have steep monthly fees, sometimes $30 or more. If you manage to stay above a specific balance limit from month to month, the fee is waived. However, if you drop below that limit, that fee will be automatically withdrawn from your account.
The same idea goes for the cheapest account type. While the low monthly fee and minimum balance may sound appealing, you’ll be permitted a smaller number of transactions and a limited range of other benefits. You could also be charged fees for e-transfers, balance transfers, extra transactions, and other such actions, which will be “free” with the higher-quality accounts.
Savings accounts also come with many considerations. Signing up for certain chequing account types sometimes allows you to open a free savings account while others don’t. Some savings accounts help you build wealth over time through interest. Then again, no banking is truly free. Even if there is no monthly account fee, your bank still needs to make money in some way, so they’ll find other ways to charge you, whether it’s through administrative fees or other hidden costs.
Ask yourself (or your banker) questions like:
- How many bank transactions do you typically need per month? Does the option of unlimited transactions outweigh the price of your account itself?
- Do you want/need all the perks of the more expensive account types?
- How often do account rates change, if at all?
Want to know how you can get a bank account in Canada for cheap or free? Click here.
Every bank will offer tons of different credit cards to choose from. As we said, you can even have free access to cards that normally cost over $100 per year, as long as you have a premium account. However, what your bank may not tell you is just how many card types they actually have, especially when it comes to those with no annual fee. They’ll simply try to lure you in with all the bells and whistles of the expensive cards. Do you like to travel? Why not apply for this travel rewards card? Do you drive a lot? How about a card that gives discounts on towing and fuel? You can also use your points to pay your credit card bills!
In the end, these “benefits” are not nearly as beneficial as they appear. Those reward points, for example, are not actually worth that much. They might entice you with offers like: “sign up for this $120/year card and get 15,000 free travel points to spend on the flight of your choosing!” Then again, a typical travel point is worth about $0.005. So while 15,000 points might sound like a huge amount, it equals a little over $50. You’ll have to spend thousands of dollars before you make a dent in any flight price. Additionally, those points might only be redeemable with specific travel agencies and only on local flights. So, if you’re looking for the cheapest flight out of the country and want to use your points, you might be out of luck.
Ask yourself (and your banker) questions like:
- Will you actually use all the benefits of an expensive card? Or do you usually only buy common consumer goods?
- What are the monthly/yearly costs for each type of credit card? Do you have to pay for balance protection insurance and other such fees?
- What is your credit limit? Does your card issuer charge overdraft fees (likely)? Can you request set credit limit that you cannot go over to avoid such fees?
Check out this infographic to learn about how much it costs to buy a house in Canada.
It’s no secret that all banks charge different rates for their products, particularly mortgages. Since any mortgage can be extremely expensive, many clients will look for the bank with the lowest interest rates and stick with them. What most banks won’t tell you, however, is that they are actually partnered with a particular mortgage broker. When you apply for a mortgage through your bank, you’ll actually end up doing business with the broker instead, who gets a special rate for taking on clients for them and allows the bank to save time and money in resources. You could potentially receive a better mortgage rate if you apply directly through the broker, rather than the bank.
Read this if you’re trying to decide between a bank or a broker for your mortgage.
Another mortgage secret they’ll often keep from you has to do with the foreclosure process. If you’ve missed a mortgage payment or are in danger of defaulting in some way, banks sometimes use scare-tactics to get you to continue making proper payments, namely that your home will be foreclosed and sold at auction. While this occurrence is true enough when you default on numerous payments, foreclosures are actually rarer than your bank would have you believe. In reality, banks don’t want to go through the foreclosure process because it’s time-consuming and expensive. Now, don’t use that notion as an excuse to stop making mortgage payments, as doing so will still harm your credit and finances severely. However, just know that banks often delay the foreclosure process by 6-months, sometimes even a year. They use these scare-tactics so that they don’t have to go through the foreclosure motions.
Ask yourself (or your banker) questions like these:
- Does your bank charge you for early payment on mortgages and other types of loans? What about other mortgage fees for legal issues? Administrative costs? Exit charges?
- Is it better to go with a fixed or variable mortgage rate?
- What do their payment schedules look like and can you negotiate one that works better for you?
Need more information about missing mortgage payments and foreclosures? Look here.
Your Negotiating Power
Whenever you talk to a bank employee, keep in mind that it’s not them specifically that’s trying to treat you unfairly. They’re just doing what their head office tells them to do. They might not want to charge you a high rate or peddle you a product you don’t want, but their boss tells them they have to if they want to keep their job.
Read this before you try to renew or renegotiate your mortgage.
That being said, it never hurts to negotiate for the best deals possible. For instance, they might advertise a standard rate on some account or product. Even if the rate is too high for your financial comfort, you pay it anyway out of sheer convenience and lack of proper knowledge. Nevertheless, you do likely have some negotiating power. Show your banker that you are clearly unhappy with your rates or the services they offer. You can tell them you’re thinking about switching to their competition. Who knows? They may not give you a much better rate, but they could throw in some other benefits to alleviate the situation and avoid losing a client. The same tactic can be used if you accidentally miss or are late on a credit card bill. Remind them that you’re a good client and if that’s true, they’re more likely to waive the penalty fee and interest for the unpaid balance.
Wondering if there’s any way to beat your lender’s interest rate? Find out here.
Your Credit Health
Your bank might offer you all sorts of perks to get you to sign up for a new credit card or to keep you on as a client in general. What they may not tell you is how influential the health of your credit actually is. For example, you could be going through life paying extremely high-interest rates on all your financial products. All the while, you didn’t realize that your credit score, among other credit-related factors, is a key factor that can help you obtain a much more reasonable rate for your credit cards, mortgage, lines of credit, etc. The higher your credit score is, the lower your rate will be, and the more money you’ll be saving over the course of your credit product payments.
Click here to discover some methods of improving or fixing your credit score.
Don’t Be Fooled! Be Cautious Instead!
Remember, your bank is a business, no matter what their company name is or how they market their products. It’s in their best interest to profit from your continued business and it’s possible that you might not always get the full truth from them all of the time. Look out for yourself and your finances by considering all the factors that come with giving a bank your business.
Rating of 4/5 based on 10 votes.
Largest Lender Network In Canada
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
goPeer — Helping Consumers Achieve Financial Freedom by Connecting Canadians Looking For Financing With Canadians Looking to Invest
goPeer is Canada's first consumer peer to peer lending platform and connects creditworthy Canadians looking for a loan with everyday Canadians looking...