Canadian Personal Finance Blog

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?

For those of you who are unaware, Banks try to capitalize on attracting new (and young) customers on campus these days (most Universities have entire bank branches on campus).  They are quite aggresive in their marketing to these new potential clients, enticing them with iPods and other “perks” to open new accounts.

When I was at University the on campus bank knew that a great many of the students were in Co-op, and thus excellent new victims for their bank service fees. I opened a bank account on campus at first mostly for ease, since I lived on campus at the time, but then they started enticing me with new exciting services like:

• My first credit card, because now I actually made money (4 months at a time), and I could now start learning about the joys of CREDIT (and hopefully not pay my bills on time).
• RRSP loans, to move income around from year to year (if one year I worked for 8 months, I could normalize the income with the next year, by using this loan, for a small fee).
• ATM machine access and their fees (yes I am that old that this was a new service back then).

The CIBC branch at the University of Waterloo had a pretty sweet business running, and I am sure there are people who still bank with CIBC because they started at the U of W. I changed banks after I moved off campus and Canada Trust was actually a closer bank, but I kept my CIBC credit card for a long time.

Banks are always on the look out to get NEW clients that want to pay Bank Fees and put their savings in their banks for the bank to use as well.  When you send your child/student off to school keep this in mind and maybe talk to your kids about banking and the in’s and out’s of the “Banking Game”.

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.