Monday, May 4, 2015

No Fee Banking with President's Choice Financial or Tangerine

Recently, Royal Bank (RBC) made the news for finding creative new ways to charge its customers even more fees than it already does.  The additional costs include charging $2-$5 for previously free transactions such as making debit, credit card, mortgage and loan payments, and higher fees for services such as stop payment, cheque certification, and wire services.  The general consensus is that other banks will eventually follow suit, in their never-ending pursuit of greater profits.

I still remember the ultimate example of unreasonable bank fees–a news story about a mother who wanted to teach her young son the value of saving.  She helped him deposit $20 into his own bank account and returned some time later to show him how much the money had grown.  Instead, they were informed that the account balance actually had a negative balance after service charges ate away all the money.  Instead of making money, the boy now owed the bank money!  I guess the lesson this child learned was that he would do better by hiding his money under his mattress.  The negative press from this story led to the banks offering "no-fee children's bank accounts", but it illustrates the general trend for banks to try to gouge you whenever they can.

It has been over 12 years since we renounced doing business directly with any of the big five banks, in protest over their service charges.  Instead, our banking choice has been President's Choice Financial (PCF) with its offerings of  chequing and savings accounts with no minimum balance requirements and no fees for unlimited deposit, withdrawal, automatic bill payment or chequing transactions.  This is fabulous for regular day to day banking fees, as long as you do not miss the additional services that it doesn't provide.  PCF is a virtual bank that only supports online and telephone banking and does not have any branches or tellers. It also does not offer services such as certified cheques and its debit cards do not support CIRRUS or PLUS for access to cash from international bank machines. 

It should be noted that President's Choice Financial is actually owned by Canadian Imperial Bank of Commerce (CIBC) and acts as its "discount banking" brand.  Accordingly, PCF accounts can be accessed not only from PCF bank machines (which are harder to find), but also from any CIBC bank machine, at no cost.

President's Choice Financial even has comparable if not better interest rates when stacked up against the major banks with their bricks and mortar branches.  At last check of Cannex Financial's listing of deposit accounts, PCF is paying 1.05% annually on savings accounts as opposed to 0.8% paid by RBC, Bank of Montreal (BMO), Scotiabank (BNS), and CIBC, with the latter only paying this rate if you have a minimum balance of $5000. Similarly, PCF is paying 0.1% on chequing accounts as compared to no interest at all from BMO, BNS, RBC and TD Canada Trust (TD). 

Having a no-fee virtual bank alternative has been a brilliant strategy for CIBC, one that has been recently copied by Scotiabank when it bought ING and rebranded it as Tangerine.  I trust that both PCF and Tangerine are smart enough not to mess with a good thing and try to increase their bottom line by slowly introducing new fees.   If they did that, they would lose the very concept that currently gives them a competitive edge for customers who want no-fee, self-service banking.

Choosing President's Choice Financial to be our primary bank all those years ago has been a great decision for us.  We have been able to easily deposit and withdraw money from the numerous CIBC/PCF bank machines, set up regularly scheduled automatic bill payments and even connect our accounts to our Scotia iTrade discount brokerage accounts for easy transfer of dividend income.  Why worry about fees and keeping minimum balances with a major bank, when PCF offers us about 99% of what we need?

The only reason we found for keeping an extra bank account with a major bank is for access to emergency funds from an international bank machine while traveling out of the country.  For that purpose, we opened a basic chequing account with TD and keep a balance of $2000 (recently increased from $1500) in order to have the monthly service charges waived.  When we travel, we transfer extra funds into this account as contingency and if we don't end up using it, we transfer it back after.

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