Canadian Personal Finance Blog

My wife and I spent about an hour working with our TD/Waterhouse rep attempting to set up an RDSP. Luckily the rep had already pre-read as much information was available from TD (i.e. not very much), and so we spent 45 minutes filling in paper forms.

What really had my head spinning was:

• The large volume of paper forms (that will have the same information transferred to a computer later)
• The repition of the exact same information

The number of times, my wife’s name, address, and other info was awesomely bad. The reason we were given is because this is a new program for TD the enrollment is not automated, and hopefully one day they will automate it, because this paper trail stuff is really for the birds. I had to live through this last year when I opened a Retirement Fund, but I believe I have an answer as to why all this paperwork is necessary.

Each group inside of TD (and any other bank I would guess) that is part of the RDSP system (e.g. accounting, trading, web interface, etc.,) want information, so they design a form that will get all the information they want. The better way would be to have a single larger form which is then shared with all the groups involved in the savings vehicle set up, but I would guess, there are no bonuses paid internally at TD (or most other banks) to streamline customer interface systems, thus the problem is unlikely to be solved in the near future.

I was also dismayed to hear that the RDSP will not be hooked into the on line banking capabilities any time soon either.

I see this constantly with large firms, that each individual “fiefdom” of technology or information inside the firm feels they are omnipotent and worse still, isolated, from other groups, so they simply attempt to make their own lives simpler, and figure out what small part of a larger problem they have, and optimize the solution for their purposes only.

I would bet there are a few consultants out there making a bloody fortune wandering around to large firms and telling them to stop letting their individual groups solve issues at the sub-micron level and to start creating Macro solution teams instead.

I don’t mean to pick on TD, but this period of time got me thinking about when I deal with Bell, Rogers, Any Bank, Hospitals and other customer facing industries/companies it is rare you run into a Customer Initiation system that makes it easy for a new customer to be created.

Evidently TD in the US had a small glitch and a bunch of folks may not have paid their bills on time. This makes for an interesting issue about what happens if and when you pay your bills late what will happen?

In this instance it might well be in your rights to complain to the bank and make them talk to your creditors and/or make them pay any fees that you may have incurred because of their error (be it clerical or computer). This is the course of action to take when your bank screws up, and you end up getting in trouble because of it.

Wonder what TD did about their customers who may have had their mortgage payments show up late because of their computer glitch? Interesting question, we shall see what stories may come from this one.

Whoops, my bad

On a related story, I actually did pay my Mastercard bill 1 day late once (and the bill for the month was quite high due to various purchases) but I only figured it out when I got my bill the next month, and saw the $75.00 interest charge that I had incurred. Those who know me can guess the trail of expletives I unleashed after I saw it, but eventually I calmed down and decided to call and see what might happen if I claimed I was an idiot.

I spoke with a very good customer rep, who looked at my account, and saw that I had never made a late payment in the previous 3 years, so she forgave the finance charge and also made sure I didn’t incur any further interest charges because of my error. Just goes to show, you never know what a bank or Credit Card company will do for you unless you ask them.

The customer rep did point out that I shouldn’t do this again for a while because it was a special “perk” for good customers, so keep that in mind too.

So I really was going to write something on Wednesday before I got the Blue Screen of Death from Vista, which will now cause me to do a full backup of my system and possibly replacing a few things that I suspect might be part of the issue, but that is not the subject of today’s post.

Bank Fees as Simple Interest

I mulled over an idea I had about if banks had to tell you what their service charges were as an interest rate whether folks might get a little bit more upset about how much they are being gouged.

Right now Bank Fees are quoted as a dollar value like $12.95 for our Extra Special Banking Service, etc., etc., however what if we do a little simple arithmetic (Michael James could do the more interesting compound interest version of this equation)?

Assume that over a year you hold a balance of about $500 in your chequing account (which is where you do most of your banking). Let us also assume that you get paid no interest on your balance (that is no stretch right now), but you get charged $12.95 a month for the Extra Special Banking Service offered by Leech Banks.

Let’s wander through the calculations:

• If you pay $12.95 a month in service fees (excluding other fees for cheque printing, non-bank ATM withdrawals, etc., etc., etc.,) that adds up to $155.40 in a year for service charges.
• Assuming we keep the balance in our chequing account at $500.00
• If you use a simple interest model (compounded once a year), you then have paid a 31.08% simple interest charge for this service.

Think about the number you just saw, you lost over 31% of your principle due to your bank withdrawing service charges. This value would be higher if you had a monthly compounding period (I think). If you carried more money in your account this might be a lower rate (in my bank if I hold over $3000 in my chequing account I then don’t pay at all), but if you kept a lower principle the rate would even be more astronomical (if you held a balance of less than $200 it would in fact be closer to a 100% simple interest charge).

Would you use a bank that gave you -31% interest on your chequing account? Would you go anywhere near a bank that advertised that service?

Continuing on from yesterday’s post about how banks differentiate themselves from each other.

Insurance

Banks now are offering insurance on their web sites and at the branch, which makes them more of a “one stop shopping” for financial services, which is a good service for them (for customer retention).  I know I am guilty of using this “convenience” service to get quotes for various insurances when I need to, and I may buy Tenant’s insurance for my daughter (after reading an excellent article by Rob Carrick in the Globe and mail, about the importance of having Renters Insurance if you are a student).

Always get many quotes to get your cheapest insurance, however, Banks are now in the insurance business so remember to avail yourself of this service too.

Investing Services

Pretty much each major bank also offers investment services for their customers (either real stock purchases, ETF’s, Index funds or crappy Mutual funds). I use TD’s investment service, which seems competitive, but I have heard that you can get better deals with these services if you shop around, or have a lot of money invested with them (which makes sense). Are any of these services head and shoulders better than their competition? I have no idea, anybody care to voice an opinion on this point?

Free Banking

OK, only 1 or 2 really offer “free” banking (ING and PC Financial are the two I can think of), and that is the major differentiator that I can see for banking. If you can get your banking services for free, that is a major differentiator for any bank (and if you are paying too much for your banking that should be a differentiator as well). I have already ranted about this topic enough times, but remember you don’t have to pay $25 a month to a bank for the priviledge of using their services! Paying $30 for cheques is even worse!

What else?

Are there other services or things that would cause someone to prefer one bank over another? Any and all opinions or comments invited.

This is a reprise of one of my favorite NFB shorts, called My Financial Career based on a story by noted Canadian humorist Stephen Leacock.

For my regular readers you’ll know I have already posted this once, but I do love to reminisce with this animated short because it shows so many of the interesting traits the “old” banking system used to have:

• Bankers’ Hours, which were 10:00 AM to 3:00 PM Monday to Thursday and 10:00 AM to 5:00 PM on Friday and heaven forbid you talk about weekend hours!
• Talking to someone directly about your banking

I chuckle every time I watch this witty and wonderful short