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Look for good value when shopping for banking services

Look for good value when shopping for banking services

March 13, 2014

Banks can be both good and bad depending on your perspective. To some, the banks are both good and bad.

Over the years my impression about how Canadians perceive banks is that they have a love-hate relationship with these institutions.

People complain about ongoing bank charges but respect and admire their financial strength and reputation. People dislike the fees but they enjoy the feeling of security.

Banks are very profitable. Canadian banks have reported their earnings for the first quarter of their fiscal year. Four of the six big banks reported record earnings. The Toronto-Dominion Bank reported a quarterly profit of more than $2 billion which is a first for them.

If banks do anything well, they know how to charge their customers. In my opinion, the banks do a better job of running their business and maximizing profit than the consumers do at controlling their own costs.

Consider normal banking activity and see how a little more consumer planning would be benefit. Customers leave higher than needed cash balances in their checking accounts which generally pay no or little interest to the consumer. The interest on a savings account is also very low.

By contrast if your credit card has an outstanding unpaid amount that is past due, you pay an interest rate of close to 20 percent. The same person paying exuberant credit card interest is likely carrying a cash balance in their checking or savings account. This does not make financial sense.

In a perfect world all banks would allow your funds to flow freely between your various bank accounts and credit cards so as to maximize your interest earned while minimizing your costs. This is the way the banks profitably move their funds around to maximize their earnings. For example, their cash balances are invested overnight just to earn additional income.

Our recommendation is that you review your banking needs and then make sure you properly shop for those services that meet your needs. If the bank charges are of concern to you, then ask around to see if there are better options. Look for good value. Manage your banking services as you would any other goods or services you may purchase.

As for outstanding high card interest, consider having the credit card balance paid automatically when it is due. If you need access to cash, consider not just leaving large cash balances in your bank account. Perhaps you should have a line of credit. The line of credit can accommodate short-term cash flow needs while the large cash amount is invested more wisely.

Consumers are encouraged to manage their personal banking to get the best value possible.