Best Buys for Basic Banking
Services
Why is looking for a bank account so complicated?
Nothing is simple anymore.
The previously simple task of opening a bank account has turned into quite a
chore. Why is looking for a bank account today a complicated task? It all
started with the banks’ endless thirst for productivity gains. Productivity is
a code word for cost cutting. Now don’t get me wrong, focused cost cutting is
good for the shareholder. Considering that virtually every bank customer holds
bank stock in his or her RRSP mutual funds, cost cutting over time should
increase bank stock values and therefore allow you to retire sooner. This process of increasing productivity also
highlighted the high costs of handling paper in traditional bank branches. In
fact, many bankers argued that they were losing money on chequing account
packages. As a former banker myself, I tend to believe their argument. Handling
cash is expensive. Bank fees we pay today more accurately reflect actual costs
for the services rendered than they did before.
So where are the good deals?
All banks are not executing
the same business model. It appears to me that some banks have adopted a low
cost Walmart business model. There are deals to be had and I hope they continue
into the foreseeable future. The wild card is, of course, whether our good
government will bless future bank mergers. Since I choose not to sit on the
fence, I remain unconvinced about the potential cost efficiencies that could
result from the mergers. I have a funny feeling that monopolistic pricing may
get the upper hand in any proposed bank merger, which would undoubtedly
increase bank service charges. So where are the deals in Canada? How about
President’s Choice Financial (also known as Amicus Bank), ING Direct (for
savings accounts), and CIBC. Did I
mention the caveat emptor? As long as you are internet and bank machine
friendly, your choices are many. Save
your money for something more important than bank service charges, if you can
help it.
A study of 10 financial
service providers was undertaken in the month of December 2003. The focus of
the review was limited to “value” or “basic” banking account services. I wanted
to see if a “free” basic chequing account exists in Canada. I was surprised
with the results. The study included the top 7 Canadian owned banks, the top
foreign owned bank as well as two alternative banks.
All banks maintain a low fee
basic banking package as a response to government regulation requiring them to
offer Canadians access to basic banking services. This is in compliance with the Financial Consumer Agency of
Canada (FCAC), the newly created financial services watchdog. Unfortunately,
low cost banking quite often becomes high cost banking when the maximum number
of transactions is exceeded. The selected accounts in my study were not always
the cheapest, as they quite often limited the number of transactions to an
unreasonably low level.
|
Services |
||||||
|
Monthly fee |
6.95 |
4.00 |
6.00 |
4.00 |
Not available |
5.50 |
|
M.F.W.1. |
1500 |
N/A |
N/A |
1000 |
|
N/A |
|
Transaction/mth2 |
20 |
15 |
2 |
12 |
|
50 |
|
Cost per debit3 |
.50 |
.50 |
.75 |
.60 |
|
.50 |
|
Special Savings4 |
yes |
yes |
yes |
yes |
|
yes |
|
Online Banking |
yes |
free |
free |
yes |
|
yes |
|
Online transactions5 |
.50 |
.50 |
40 free |
free |
|
.50/debit |
|
Lowest interest |
0.00% |
0.00% |
.05% |
0.00% |
|
? |
|
Services |
||||
|
Monthly fee |
5.00 |
2.95 |
4.00 |
free |
|
M.F.W.1. |
2500 |
N/A |
1000 |
N/A |
|
Transaction/mth2 |
20 |
8 |
10 |
unlimited |
|
Cost per debit3 |
? |
? |
.60 |
Free6 |
|
Special Savings4 |
yes |
yes |
yes |
yes |
|
Online Banking |
yes |
yes |
yes |
free |
|
Online transactions/mth |
20 |
8 |
.60 |
unlimited |
|
Lowest interest |
? |
? |
0 |
.25% |
Notes:
1. MFW – Monthly fee waived if a minimum balance is
maintained.
2. Number of free transactions per month
3. Cost per transaction that exceed monthly limit
4. Special offers for seniors, students and/or high
usage.
5. Cost when maximum transactions per month is exceeded
6. At any CIBC, PC Financial machine or online.
? Means I gave up looking for it. This comment is indicative of poor web
site management.
The results are quite clear.
President’s Choice (PC) and CIBC offer a superior basic banking deal. You can’t
beat free. It should not surprise anyone that the biggest competitor for no fee
PC Banking is its parent company CIBC. Switching to PC Financial will save the
average consumer $75 per year. Not bad. As long as you can live without teller
service, and can find a CIBC branch ABM machine, this account is for you. As if
this is not enough, PC throws in free groceries. With moderate Debit card and
ABM machine usage, the savings should easily exceed $100 per year.
Traditional bank services
are expensive! Stop using cheques. Don’t ask for them to be returned with your
statement. Don’t use tellers. Move your transactions online, and you will never
have to face those huge noon hour teller lines!
The best web site for
information on affordable banking and consumer banking rights is no doubt the
newly minted Financial
Consumer Agency of Canada. Their website has a first class banking fee
calculator. I tried it and found PC Financial to be the most competitive
service provider in Canada.
Another smart banking tip is
to use the federal government’s personal finance tips and personal banking
account calculator on its Strategis
website to determine the best banking service(s) for your banking needs. I
don’t quite understand why two federal departments have competing banking
calculators. What I do know is that the FCAC calculator worked better for me.
The individual bank web sites also have similar chequing account calculators
should you decide to stay with your bank.
The future for personal
banking services is quite clear. Traditional tellers are history. Virtual bill
payment will be the norm. Cash will no longer be king. Even the archaic cheque
will die. Virtual banking is here to stay, and as long as it’s free, it’s OK
with me.