Years ago, I did some research for Ratehub that showed Canadians are likely to keep the same bank account for a long, long time. Keeping an account open for 20 years or more was normal – even though people also believed they would get a better deal if they switched banks.
My research didn’t get into why people stayed loyal to their bank, but my suspicion lies with two reasons. Either they believe that their loyalty as a chequing account customer will earn them favourable rates on other products with the bank, or they think the effort of switching banks isn’t worth it.
The first assumption is false. For the most part, a longstanding relationship with a bank will not get you the best deal on a mortgage – a mortgage broker will.
But what about the second? How hard is it to switch banks?
Why switch banks in the first place?
If you’ve been with the same bank for more than a few years, it’s a good idea to see what else is out there. Your needs change over time; so do banking products. The account you chose a decade ago may have been the best for you then, but it might not be the best now.
- You could be paying for services you don’t use or need
- Are you paying a la carte for services that you could get included?
- Potentially paying a hefty monthly fee for a premium account when a no-fee chequing account would suit you just fine.
If you’re paying $30 per month for your chequing account, you could save $360 per year by switching to a no-fee option.
How hard is it to switch banks?
The actual work of switching banks is not that hard. All you need to do is compare chequing accounts online, open an account, and update the banking information on all your pre-authorized transactions.
The first job is the fun part. Compare chequing accounts online and find the account that’s right for you. Consider how you use your bank account, what kind of transactions you make, and what features you need. Once you’ve decided, you can apply to open an account, which can take a few days, thanks to identity verification rules. You might also need to make a small initial deposit to get the account going.
Once your new account is open, your next task is to move over all your pre-authorized transactions. That includes any income paid by direct deposit (payroll being one example) and any automatic bill payments.
After everything is moved over, you can go ahead and close your old account. Unlike cancelling your cell phone plan, this should be relatively painless. In a brief phone call, or potentially a trip to the branch, your old bank will make sure everything is square between you (you’ve paid them anything you owe, and your balance is returned to you) and close the account.
The real work of switching banks in Canada: managing a high-stakes balancing act
While not as easy as it could possibly be, the work involved with switching banks can be very well worth it to save big on banking fees. Unfortunately, it can also be a high-pressure job, thanks to unclear timelines and the potential for expensive penalties.
In Canada, there’s no automated service that handles the minutia of changing banks. It’s up to you to contact all the companies you work with to ensure your pre-authorized transactions are updated to reflect your new bank account. To complicate matters, these changes can typically take 10 to 15 business days to apply – but during that notice period, you can’t be 100% sure of which account a transaction will be applied to.
This creates a delicate balancing act with expensive penalties for letting things wobble. If your bank account doesn’t have enough funds to cover a pre-authorized bill payment, you can be charged an NSF fee of $45 or more. Billing companies often have similar fees for dishonoured payments, meaning you can literally be charged $100 for the crime of not having enough money in your account.
Take control to ease your workload
Because the stakes can be high, the work involved in switching banks is made far more complicated than it needs to be. There are a few things you can do to take control of the situation and ease your transition.
Start by getting a complete list of all the pre-authorized transactions you need to move. Don’t forget the ones that happen irregularly, like annual subscriptions. Having a plan in place will reduce the number of “uh oh” moments that happen after you think you’re done making the switch.
Use a credit card to smooth the transition
Even if you don’t like to use your credit card regularly, it can come in handy when switching bank accounts. You can start by moving all your pre-authorized bill payments over to the credit card and take advantage of the card’s interest-free grace period to pay those bills a bit later than you ordinarily would. After you’ve moved your payroll to your new bank account, you can move your bill payments there and close the credit card.
This strategy is unlikely to have a significant effect on your credit score, and you could even earn cash back rewards or points for using a credit card to pay your bills. You might even find that you enjoy having a bit more flexibility with your payments and continue using your credit card over the long term.
Make the phone your friend
When money is tight, and there’s no room for error, you can save yourself some big headaches by picking up the phone. Contact your payroll company and find out which account your next paycheque will be deposited to. Call the companies you have pre-authorized bill payments with and do the same. You may be able to make special arrangements for a single billing period to make sure there are no interruptions.
Is it really worth it to switch banks?
The banking system in Canada isn’t set up to make it easy to switch banks. But the headache can be worth it, especially if you’re switching from a premium bank account with a hefty monthly fee to a no-fee option. You can save hundreds of dollars per year and get a banking package that’s better suited to your needs at the same time.
The bottom line
Make the job of switching banks easier by being prepared. Take careful stock of all the pre-authorized transactions you need to update, use a credit card (even temporarily) to avoid expensive NSF charges, and use the phone to be sure when all the changes involved will be made.