Initially published in 2019, this article revisits one of the clever personal finance strategies. A colleague originally shared this strategy with me. Banking platforms and FinTech tools have undergone significant evolution. However, the concept of using separate bank accounts to control money flow is still relevant. This approach helps avoid unpleasant surprises, like a clawback from payroll or government deposits. Especially in the wake of the Phoenix payroll debacle, many public sector employees learned the hard way that centralizing your finances in one account can be risky. Fast-forward to today, and this strategy remains effective in a world of e-transfers, automation, and unexpected deductions.
Previous Stupid Bank Tricks
I enjoy strategies to use the banking system to your advantage. With this in mind, I have written a few articles on Stupid Bank Tricks.
- Real World Example: Kids Allowances. An early article highlighting how you can automate your kids’ allowances using the bank.
- A Quick Brilliant Savings Tip was done by a co-worker. It is not a banking trick, but it is still fun.
- Pay Yourself First outlines how to spread your money around using your payroll system.
- I have set up an account to not have to pay ATM fees, it worked for a while.
More Stupid Bank Tricks
A co-worker shared a stupid bank trick with me. My apologies to David Letterman. This trick has helped him a few times. This one struck me as a perfect strategy.
Create a bank account where deposits will go. Deposits such as,
- Pay cheques
- Tax Refunds
- etc.,
This account is solely in place as a deposit point. The account information is given to your jobs payroll department and the CRA.
The strategic part is to have a working account. This account scrapes another account. The purpose is to build up funds for day-to-day banking. This account is banking main street, where bills get paid, cheques written, groceries paid, and other normal banking tasks.
Why separate these two accounts? In the case of my co-worker, he found out he was going to be “Phoenix’ed”. Something had gone wrong with his pay. They wanted to take back money from the account. His “scraper” functions had already taken the money from the account. Therefore, his wages could not be taken back. There were insufficient funds in the account.
Why This Strategy ?
Compartmentalized bank accounts is an interesting idea. I have done this for saving, but had not thought of the ramifications of a "scrape back" on my account.
I assume there is a way to tell your bank not to allow withdrawals from your account by specific folks? This is not a topic I had ever thought about.
Addendum
Another vital thing to remember is segregated accounts have other advantages.
- If you bank at different institutions, the $100K CDIC coverage comes into play. At each institution (which is covered under CDIC) you have $100K insurance.
- Separating your Debt and Savings from a bank is not a bad idea. Banks can, and will sometimes take money from your accounts if your Debt is in arrears. They will make you put your savings in their bank to get a Mortgage, but you can create an account at another bank to put your savings in afterwards.
Annoyances & Stupid Bank Tricks (Clawbacks, Automation, and Oversight)
The “Stupid Bank Trick” described in this article often surprises folks. It highlights how legally murky clawbacks and payroll overpayments can be. This is especially true if the funds are no longer in the account.
Many assume that if their employer accidentally deposits too much into their account, they can rely on the bank to return it. But that’s not always true. If the funds have already moved to another account, the employer often has to negotiate repayment directly with the employee. The same applies if the funds have been withdrawn. This negotiation may involve a repayment plan or legal proceedings.
Even more surprising? There’s no universal rule in Canadian banking that allows you to blacklist creditors or stop specific types of withdrawals (especially if it’s CRA or a federally regulated employer). This is why the scraper account idea is so powerful it creates a buffer zone.
