5 ways you can avoid the ‘big bank’ upsell

Make sure you’re not paying more than you need to

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When’s the last time the average Canadian could walk into their local bank branch and expect to have their financial needs objectively evaluated? Needless to say, it’s been a while. Recent shocking headlines have revealed that Canada’s five big banks have allegedly been pressuring their employees to upsell, deceive and even lie to customers to meet sales targets and keep their jobs. The reports have now spurred the Financial Consumer Agency of Canada to launch a formal review of the big five’s business practices.

If there’s truth to the reports, it seems we are left with financial institutions that are a lot like car dealerships, and bank employees who are a lot like car salespeople—you know, the ones who will allegedly tell you whatever you want in order to get their selling bonus, meet their monthly quota and most importantly, make the final sale. The lesson? Don’t rely on front-end bank personnel to tell you the truth. Question everything they recommend for you because they are first and foremost salespeople.

The next time you visit your teller, make sure you’re prepared. Here are five big bank upsells that are all too common and how to avoid them. In all cases, you should do your homework to receive unbiased, up-to-date advice.

1. Credit cards

Many bank tellers get commissions for selling you another credit card or, if you have a few already and decline, getting you to raise your credit limit. Their hope is that you’ll take on more debt throughout the year, and therefore pay more interest from late payments, generating extra revenue that increases the bank’s bottom line—a plus for shareholders, but not necessarily for bank customers. If you are asked by your teller to buy a card or increase your credit limit, you just have to say NO. If they ask you why, simply say that you will be reviewing the issue yourself at a time that’s appropriate to you and your financial advisor.

If you decide you really do want/need a new credit card, do your research. For instance, our credit card finder will help you find the best store credit, travel rewards or cash-back credit cards based on your income, preferences, and monthly spending.

2. Mutual funds

The minute you hand over your ATM card to the teller he’ll be able to see exactly how much money you have sitting around. And if they see a high cash balance in any of your accounts, they will likely ask you if you’d like to make an appointment to sit down with one of their financial advisors. Beware. These advisors will probably recommend high-cost mutual fund investments for your money so they too, will make a commission on the fund sale.

Their promise of high returns and safety might sound enticing, but once again, resist. Then, educate yourself by learning about simple and cost-effective ways to manage your money yourself by using the Canadian Couch Potato, a passive approach to investing that gives solid returns and only takes 15 minutes a year on your part to execute once you’ve set up a self-directed account.

Or, if after your research you decide you’d still like some help managing your money, find a good fee-for-service financial planner who will give you unbiased investment advice for an hourly price. You can search for a MoneySense Approved Financial Advisor best suited to your needs based on location, service type, asset level and more.

3. Getting a mortgage

Banks may tell you that interest rates on mortgages and lines of credit are non-negotiable. Don’t believe them. They make a lot more money by convincing you to take a higher mortgage loan than you have to.

We’ve run the numbers. If you are buying a house in Toronto and need a $1 million mortgage, that mortgage, amortized over 25 years at a 5% interest rate would cost you $753,770 in interest over that period of time. That same mortgage at just one percentage point less—a 4% mortgage interest rate—would cost you about $583,500, or a full $170,270 less. That’s money that could be added to retirement savings, could fund more travel with your family, or help buy vehicles over the years without having to finance them.

Realize that competition for your mortgage business is huge. There are a lot of smaller financial institutions who are likely more than happy to lend you a mortgage—and at rates often at least one percentage point lower than what one of the big five banks offered you. If you’re a “prime client” you shouldn’t expect to pay a fee to your mortgage broker and you will get offered the most competitive mortgage rates available in the market. But things get a bit more complicated if you get bumped from that “prime client” list. Those on the “non-prime” client list can expect to pay their mortgage broker a fee from between 0.5% and 2% or so when the mortgage is approved and signed. So look for an independent mortgage broker in your area. You can simply do an internet search and you’ll likely find a few viable options. Meet with them, let them know your mortgage needs and get a written contract on all fees. The long-term savings will be worth it.

4. Consolidating debt

While banks like to offer consolidations of your debt, often by adding it to your mortgage, realize that you pay for this as well. After all, hiding the debt in your mortgage is not the same as paying it down consciously over the next two or three years. And by consolidating debt to your mortgage, you will likely pay interest for many more years—interest that goes to the bank’s bottom line—than if you simply saw a debt counsellor, bit the bullet and committed to a solid debt-repayment strategy.

5. Extra fees

Let’s face it, financial products are so complex now that even if you’ve done your due diligence, some extra fees or costs may have snuck up on you that weren’t fully explained, either by the bank personnel or through your own research.

So spend some time reviewing your bank and investment statements each and every month. If you see any extra ATM charges, bank overdraft fees or investment management costs you weren’t expecting on your RESP or RRSP accounts, go to your local bank and point it out to the teller. They are usually able to reverse the charges for you, clarify fee structures and possibly even recommend an alternative account more suited to your needs—and with lower fees to boot. And if you haven’t already, set up an online banking and self-directed investment account. In the end, the more you do yourself, the less you’ll be exposed to sneaky bank tricks that branch personnel could be using to pick your pockets.


Read more:

Watch: Say goodbye to bank fees

 

4 comments on “5 ways you can avoid the ‘big bank’ upsell

  1. Solid article overall, though I disagree on the point about raising your credit limit on your accounts. I think you should say yes to it. Generally a portion of your credit score is calculated using your utilization ratio. If you have a higher limit, your utilization goes down. This is not for everyone, but if you are financially responsible, pay your bills in full then I don’t see an issue to increase your available credit.

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  2. I use a line of credit account as a bank account. No fees, free cheques, withdrawals and E- transfers. By keeping a positive balance I pay no interest, and have “free” overdraft protection because it’s a line of credit. Haven’t paid back fees in years.

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  3. Big five banks tellers don’t get commission

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  4. Julie is correct in saying “Don’t rely on front-end bank personnel to tell you the truth. Question everything, they recommend for you because they are first and foremost salespeople.” Some of these bank personnel have very little training and are only doing what they were taught. Several months ago, our bank teller tried convincing us to drop our BMO Gold Credit Card for their credit card. She gave me an application form asking me to ad her employee ID. After looking into this so called better card it turns out it was not at all a card that would be beneficial for my wife and I. Our needs are specific and this card didn’t meet our needs even though she swore this was the card for us. As “The Fortunate Few” we always tell people to do their homework. Don’t ever rely on someone’s advice without doing your own due diligence. Perhaps saying NO to raising your credit is a good option as suggested in this article however, if you are a home owner, we suggest using your assets and increasing your home line of credit, but use it wisely. As for the section on Mutual Funds, Julie is correct however, note that, in our opinion, there are better investment vehicles than Mutual Funds.
    As for “Getting A Mortgage” – we are passionate about that subject as we made most of our fortune on Mortgages. Mortgages are negotiable to a certain extent and don’t be afraid to go to 3 or more banks and have them compete for your business. Show them you expect the best rate and have done your homework. As mentioned in the article, Consolidating Debt in your mortgage is not necessarily a good idea. You will find yourself paying a lot of interest in the long run. It may sound like a good idea at the time but there are other options so do your homework. And finally, “Extra Fees”; Julie is right on the money, no pun- intended. A self-directed account is a great idea however, beware, it is exactly that, a self-directed account. This means you are responsible for the choices you make. So as stated in this article, do your due diligence and educate yourself. Understanding your own portfolio with a clear plan will make you achieve all your desired financial goals.
    Daniel

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