Avoid the fee squeeze

While banks are making it easier to access your finances, the fees they charge can add up fast. Bruce Sellery explains how you can lower your banking costs.

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Question

I do all of my banking and investing through the same bank. I have about $25,000 in my brokerage account and trade a few times a month at $30 a pop. My chequing account costs $9 a month and my credit card charges prime plus 3% on outstanding balances. But when I look at all of my bank and brokerage fees I cannot help but feel like I am getting ripped off. How can I lower my costs?

Answer

I was a marketer in a former life, peddling everything from diapers to dish soap. One of the things we talked about a lot was “share of wallet.” If a consumer was going to spend $100 on groceries, we wanted the highest possible amount to be spent on our premium brands. Financial institutions want to increase their share of your wallet, too. Specifically, they want you to bank with them, as well as borrow, invest and insure because it is more efficient to sell one customer five things than to try to sell five customers one thing.

While this “bundling” strategy is working for your bank, it isn’t working for you. Here is what you need to do to find out if you can get a better deal:

  • Put a price on convenience: Having all of your money in one place makes life easier—and the banks count on it. You can see everything in one place and it makes it easier to transfer money between accounts. But you have to decide how much you’re willing to pay for that convenience and for that it helps to know what your options are. Based on the information you provided, you pay about $1,200 in fees a year on your brokerage and chequing account alone. A non-bank brokerage can cut your trading costs down to about $10 per trade. If you shop around you should also be able to find an online chequing account that charges no fee at all. Those two changes would save you more than $800 per year, which is a pretty penny if you ask me. I pay a lot in annual fees on my credit cards, but the price of convenience is just (barely) worth it. Do the math based on real numbers and ask yourself if it is worth it to you.
  • Book a meeting at your local branch: The fee discussion is best had in person, at a branch. Staff members often have some discretion so it pays to be a nice client. I would book an appointment and begin by letting them know that you’re considering moving your business to lower your fees. They’ll have your transaction data at their fingertips so ask them to review the information and recommend alternatives that could save you money. I did this recently myself. While I couldn’t get a better deal on my bank accounts, I was surprised to learn that I could lower the rate on my line of credit. I also requested that they waive the $100 annual fee on my brokerage account, which they did without complaint.
  • Meet the household asset threshold: You currently pay $30 per trade. Most of brokerages, including those run by the big banks, charge a lower commission if your account balance is above a certain threshold, say $50,000. While you don’t have that much money in your brokerage account, there may still be a way for you to meet the household asset threshold, and thereby lower your fees. For example, if you’re married, you could link your account with your spouse’s. Or you might have another account somewhere else that you could bring you over the top, like an RESP.

So to answer your question, yes, it is possible to switch to a different institution and pay lower fees. Financial institutions are for-profit companies and they charge the price that the market will bear. The more people like you who move to lower fee options, the lower fees will become across the board. So start with the incumbent and see what they can do to ease your fee pain. If the price of convenience is just too high for you, definitely invest the time and energy to switch.

ask@moneysense.ca

3 comments on “Avoid the fee squeeze

  1. i've had a pc financial chequing account since i can remember. but now i'm looking where would it be best to open a TFSA account? i want to be able to trade regularly so which discount brokerage would be best suggested?

    Reply

    • If price is your main criteria, questrade is worth checking out. They have a $4.95 option, and promise never more than $9.95.

      Bruce

      Reply

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