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Cheaper Mortgage Rate or Free Banking?

This was written in 2011 when banks were more open to discussions about fees. Remember, Free Banking is readily available from many institutions. A Cheaper Mortgage Rate is also negotiable too.

That was the exciting plight I was in last week when I went in to talk with my bank. The topic of my visit was RESPs and such.

Usually, when I make an appointment at the bank, I bring a list of things I need to get done. I also bring a few Christmas wishes. Typically my main desire is to get Free Banking (i.e. no bank fees or a vacation from fees (yes, I already have a EQ account)). However, this time a co-worker gave me a different idea.

What does this gift mean?
No, Not This Type of Bank

As background usually, every time I ask for Free Banking, the bank representative reacts as if I was asking for one of their kidneys (and possibly their spleen). They say it’s impossible to get that, and such, but will eventually relent and give me six months or a year of banking for free (i.e. no monthly service charge). It all plays out as a very poorly written soap opera. I decided this time I’d try for something with more impact. Cheaper Mortgage Rate?

Lower the interest rate on my Lines of Credit.

Currently, most secured lines of credit are pegged at Bank Prime (not the bank of Canada prime) plus 1%. I decided to ask, can that rate be lowered? As I have said the worst thing they can say is No.

The meeting was going very well, and I had reached the end of the tasks I needed to get done, so I figured I’d broach the interest rate subject and asked, “Is there any way to get a lower rate on my line of credit?”. The bank rep did not jump out of her chair screeching obscenities. She didn’t even seem remotely perturbed by request (which made me concerned that it was an easy NO). She typed a few things on her computer and said, “Yes, we can see if we can cut your rate to 0.5% over our prime”.

I believe my mouth dropped open. I blinked a couple of times but regained my composure enough to say, “Yes, that would be very good.”. Some forms were filled in, but I believe I have been approved for this rate. No fuss, no muss, no complaining about me wanting an internal organ, all very civilized.

This good news got me scratching my head a little since free banking costs the bank about $14 a month, whereas a rate cut by 0.5% on my Line of Credit is more than that, so what gives? The Service Fee is actual bank income and is very important to the bank. In contrast, income from Line of Credit interest (while important) is a more variable value, so losing 0.5% is not as important? I may be out in the left-field on this one, and I am open to suggestions if anyone has a better idea.

At the end of it all, I am proven correct. If you don’t ask, the answer is always no.

Free Banking

Of course, there are plenty of folks that offer free banking

Feel Free to Comment

  1. Thanks so much for this post! I’m going to try this as well. I’m assuming you have a secured line of credit. Do you know what a competitive rate for an unsecured line of credit would be? At TD, I’m currently paying TD’s bank rate + 4.1%. (This isn’t a major issue for me since I’m not carrying a lot of debt, but I like to have the line of credit around for possible emergencies.)

    Also, based on your comment that a 0.5% discount costs the bank more than $14/month, I’m calculating that you’re carrying more than $34,000 on your line of credit. Wonder if there would be ways of reducing that somehow….

  2. Prime + 0.5% is the going rate for new accounts. RBC recently had a wide advert campaign offering this rate and most everyone is matching them when asked. This is why you had no problem getting that rate.

  3. Wow, that is interesting. I should go ask my bank to lower my interest rate. I am already getting free banking by setting up auto deposit. Thanks for sharing this information.

  4. There is little risk to the Bank to offer the lower rate in this competitive marketplace, they risk more to say no and have the account sit vacant and unused. They hope that the lower rate will spur use of the account and start to charge interest. They also have built in to their contracts that rates are subject to change at any time so your “win” will likely be very short lived. Free banking is generally a hook as well for new account holders and a way to win more business. Nothing is free in the long run though

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