Bank fees make me cranky. In Canada, our big banks make billions from selling customers loans and investments. So when the bank charges me a fee to access my own money, it feels like they’re taking advantage of me.
When the banks charge fees on savings accounts, it feels even more egregious. The point of a savings account is to save your money. How can you possibly grow your savings when you’re constantly paying fees?
Take the Scotiabank Momentum Plus Savings Account, for example. Not only does it charge you $5 for debit transactions (excluding transfers to other Scotiabank accounts using online, mobile, or telephone banking), but it only pays out on its highest tier interest rate of 1.45% every 90 days and only if you don’t make a withdrawal during that time. If you do take out your money, it’ll cost you $5 and cut your interest rate by more than half.
Let’s look at an example using that account. If your balance is $5,000 and you don’t make a withdrawal, the Scotiabank Momentum Plus Savings Account will pay you about $18 in interest after three months.
If you do make a withdrawal, your rate will drop and you’ll earn just less than $9 in interest after three months. Pile on the $5 transaction fee, and you’re down to a return of less than $4. A second withdrawal will actually put you in the negative.
That’s a $14 loss just for the privilege of accessing your money. That’s a huge expense and it’s totally unnecessary.
The only time when this makes even a little bit of sense is if you’re really bad about taking money out of your savings account and you need a big incentive not to touch it. Even then, you’d get a better interest rate and pay no fees on a GIC. As of the time of writing, the best one-year GIC rate is 2%. That’s much higher than the Scotiabank savings rate and there are no fees.
Fees can eat into your savings quickly if you’re not careful. Fortunately, there are ways to avoid savings account fees without having to lock your money away by getting a GIC.
First and foremost, you need to compare high-interest savings accounts to find the best option. Keep in mind that you’re almost guaranteed not to find the best savings account at your regular bank. It’s a myth that keeping all your accounts with the same bank will help you get preferential rates on mortgages and other loans, so shop around.
When you’re looking for your new savings account, look for one that doesn’t charge any transaction fees. There are a few good examples, such as the EQ Bank Savings Plus Account and the Alterna Bank High Interest eSavings Account.
Some banks allow a certain number of free transactions per month; others offer an unlimited number. You may also find some accounts allow free transactions only if you maintain a minimum balance in your account.
You’ll also want to look for a savings account that doesn’t charge any external transfer fees. This allows you to move money back and forth with your chequing account at another bank for free.
Keep in mind that if you do hold your savings and chequing accounts at separate financial institutions, it can take a day or two for money to move between accounts. A workaround to this is to find an account that includes free Interac e-Transfers. That way you can move your money (almost) instantly by sending an email money transfer to yourself.
Finally, look for the savings account with the highest interest rate. While this doesn’t help you avoid fees, it does help you maximize your savings. If you can get a high interest rate on an account with no transaction fees and no transfer fees, that’s the best of both worlds.
In fact, some of the savings accounts with the best interest rates are no-fee accounts.
Over the last few years, savings account competition has been heating up in Canada. Banks are working hard to get your deposits so there’s no need to settle for a low interest rate or an account that charges you fees to access your money. And there’s no need to stick with your current bank. You’re extremely likely to find a better savings account by shopping around, especially if you do your banking with one of the Big Five banks.
Savings accounts are a great way to save your money with flexible access, but your savings can only grow if you’re not being nickeled and dimed (or five-dollared for that matter) with fees. Compare savings accounts and find the one with the best interest rate without fees for transactions and transfers.