Bank Fees (or, dumb things I do when it is raining)

bank fees TD
Do You Know How Banks Make Money?

Not the little, seemingly harmless ways they make money, but the basic reason, sort of like, why they exist? They lend money. But to lend money, they need money (funny how that works).

This is where you come in.

Here’s a story:

Jenny needs a $100,000 mortgage to buy a house. You have $100,000 that you just received as an inheritance, and you are not ready to invest – you simply want to put in a savings account at the bank.

This is what is going to happen: The bank is going to give you 0.4% interest on your $100,000. The bank is then going to lend your $100,000 to Jenny at 2.9% interest.

After the first year, when they have collected 2.9% from Jenny and paid you 0.4%, the bank has a profit of $2,500 (or 2.5%): $100,000 x 2.9% = $2,900 (received from Jenny), less $100,000 x .4% = $400 (paid to you) = $2,500.

If the bank had $10,000,000 in deposits and had also lent out $10,000,000, the profit to them would be: $250,000. You can see how this could add up, eh?

The above is pretty much the only way banks used to make money. And, (from what I hear) they were quite appreciative of you having money deposited with them, downright thankful even. Like, to the extent that it would have never crossed their minds to charge you to access (your own) money on deposit with them. But then one day, sometime in the last 20 years, someone, somewhere hired a Consultant. And soon it was, “What if we just charge a little for X?,” and, “Couldn’t hurt to charge a small fee for Y… ”

Now, here we are today, grateful for the privilege to pay $14.95 for a debit account.

The point – and I do have one – is that if you are not super careful, auditing your statements every month, in all likelihood you will pay excess fees. Excess being charges over and above any monthly fee you have for a checking account. How do I know this? Because it happens to me, and I should know better.

TD App Last Tuesday I was on my way home from an appointment and wanted to stop to buy garden plants at the Jean Talon market. After I buried my car in the underground parking and made my way to the entrance, I remembered that nowhere at the Jean Talon market do they accept debit or credit cards.

Cash only.

And then it started to rain. Like, crazy, tropical rain storm rain. And I just could not bring myself to get back in my car and drive to find a branch of TD Canada Trust. So I did what I promise myself I will never do, and I made a withdrawal out of an ATM that was not owned by TD Canada Trust.

I knew there was going to be a fee, and I knew it was going to be nasty. But even I could not believe it was $4.00. I had only wanted to withdraw $100, but $4.00 fee on $100 withdrawal is 4%. Do you have any idea how long it would take to earn 4% in a savings account at TD?

Lucky for us, they post this information online:

Interest savings account

Would you like to guess? How long for $100 to earn $4 in interest at 0.1%?

39.3 years.

And lazy-over-here almost gave the bank 4% in 7 seconds, withdrawing from a non-TD ATM. In the end, I gave them their $4 but I withdrew $500, bringing the cost of the fee down to .8%. Yes, it is $4.00 no matter how you calculate it, but mentally I felt better about not paying a 4% fee to access my money. Which, as we learned above, would be 4% over and above the revenue they generate from their primary business model: Lending money.

What Does This Mean For You?

I want you to go back at least three months in your paper or online statements. Go line-by-line and check for any and all fees and charges. Overdraft fees, non-bank ATM fees, excess withdrawal fees, check cashing or certification fees, interest charges, etc. Anything that is a withdrawal from your account that was not made by you. Add them all up. If you find them to be high (i.e. more than $12 – $16), go to the bank and ask if they have an account with a monthly fee that has more included fees applicable to you. 

For example, several years ago I realized that as our lives together were growing, so were the number of our monthly account transactions. The last straw was a month where we paid over $30 in additional transaction fees. Back then, our only option was a $24.95 per month all-inclusive account. Which seems high – but it included a free TD First Class VISA, free cheques (usually $28/box) and unlimited transactions. Also, a free safety-deposit book, no-charge certified cheques and reduced cost U.S. dollar account w/U.S. VISA. However, I looked into our options again just last week, and there is a now a $14.95/monthly account with unlimited transactions. No free cheques but I might have ordered three boxes before I switched. Sh!  I did the math, and by simply paying for what I do use:  Unlimited transactions, AeroPlan VISA, U.S. Dollar account w/VISA, it is a few dollars cheaper per month than the $29.95 (TD raised their all inclusive rate in 2014).  

All of this to say – I am not a huge fan of budgeting, but I am a massive advocate of not squandering money. If you can take even just a little bit of time to figure out where you are wasting money, budgeting becomes not entirely necessary. Bank fees are an incredibly good place to start.  And then? If you find yourself trapped in a produce market in the pouring rain, forced to use a foreign ATM, well – $4.00 is just $4.00, and not a part of a larger, more expensive problem.  

Dear CIBC: Um, Really?

CIBC Dividend Card
I am not entirely sure what to say about this.  I just felt that in the spirit of basic math (which we love around here), it would be nice to let CIBC know that there could be some trouble brewin’ for this Quarter’s revenue numbers. 

Here’s Why: 

It cost’s $0.77 to mail a (metered) letter in Canada. I am not sure what CIBC pays for their printing. I know I pay $1.00 for a color copy at the photo shop down the street.  Let’s say they do it all in-house and can manage it for $0.10 per page and that an envelope costs them $0.05.  With the four page (double-sided) document they sent to invoice me for this $0.01 that comes to $1.02

Postage: $0.77
Printing (including paper): $0.20
Envelope: $0.05
= $1.02

Here is a very important lesson that you can take right now and apply it to investing, business, or pretty much anything really: 

If you are spending $1.02 to collect $0.01, you are doing it wrong. And you won’t be doing “it” for much longer. ~ Nanci K. Murdock, CFA

In all seriousness, because I made a payment on last month’s statement, CIBC is probably obligated to send me a statement showing that it was received. It just seems silly (to me) to receive a bill for $0.01.

What am I supposed to do with this?

Mail a cheque?! Yes, yes, I can go online and pay it, but if I don’t have unlimited transactions, it is going to count toward my transaction limit.

This Is What I’m Going To Do:

I am not going to pay this bill. I don’t use this card*, and so there will not be any further purchases this or next month.  Meaning, the next statement will also be $0.01.  I am willing to bet that the smart folks at CIBC have a computer algorithm that writes off any amount owing under a certain amount (probably $2.00) because they know that it costs them more to collect amounts less than that.  And I’m sure they love money just as much as the rest of us. 

Stay tuned!  …until next month. 

*I moved from the CIBC Aeroplan VISA to the TD Aeroplan VISA.  However, because my credit history was strong with CIBC, I did not want to cancel the card completely.  Instead, I switched the CIBC card to a no-fee card, so that I may continue to have a no-cost relationship with them, while still maintaining their favourable thoughts of me on my credit report.  If that isn’t clear, you can ask me about it