Cheaper Mortgage Rate or Free Banking?

in Bank, Bank Fees, Mortgage Rates

Written in 2011, when banks were a little more open to discussions about fees. Remember Free Banking is readily available from many institutions.

That was the interesting quandary I was in last week when I went in to talk with my bank about RESPs and such.

Normally when I make an appointment at the bank, I bring a list of things I need to get done and then a few Christmas wishes too. Typically my main wish is to get Free Banking (i.e. no bank fees, or a vacation from fees (yes I already have a PC account, as well)), however this time a co-worker gave me a different idea.

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

As background normally every time I ask for Free Banking and then the bank representative acts as if I am asking for one of their kidneys (and possibly their spleen), and they say it’s impossible to get that, and such, but will eventually relent and give me 6 months or a year of banking for free (i.e. no monthly service charge). It all plays out as a very badly written soap opera, so I decided this time I’d try for something with more impact, which is the interest rate on my Line of Credit.

Currently most secured lines of credit are pegged at Bank Prime (not the bank of Canada prime) plus 1% or something close to that, so I decided to ask, can that rate be lowered (guessing it wasn’t likely, but again, you never know unless you ask, and 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 then 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 the request (which made me concerned that it was an easy NO), she simply 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 and 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? My guess is that the Service Fee is actual bank income, and is very important to the bank, whereas 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 left field on this one, and if anyone has a better idea, I am open to suggestions.

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


  • Viscount October 29, 2011, 12:03 PM

    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….

    • bigcajunman October 29, 2011, 5:13 PM

      It’s called a Mortgage, hence, yes I am attempting to pay it down.

  • Gammj October 27, 2011, 10:19 AM

    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.

  • UltimateSmartMoney October 25, 2011, 9:19 PM

    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.

  • krantcents October 25, 2011, 1:30 PM

    My rule of thumb is always ask! I am very rarely disappoited.

  • Michael James October 25, 2011, 12:45 PM

    Well done! If you’re in the bank taking to a representative anyway, you might as well ask for something that saves you money.

  • Mike St James October 25, 2011, 8:24 AM

    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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