When I was a child, my parents signed me up for a children’s savings account with a Big Five Canadian bank. I had that account for decades. And when it came time for me to get a chequing account, I didn’t think twice about signing up with that same bank.
Over time, however, I began to suspect I wasn’t getting a great deal. I was paying a fee of around $20 a month, my savings account paid almost zero interest, and I didn’t seem to be enjoying any of the privileges loyal bank customers are rumoured to be entitled to. It was time for a change.
When Ratehub.ca asked Canadians how long they’ve held their bank accounts in its 2016 Digital Money Trends Report, a huge number said they’d had the same account for 20 years or more. Twelve percent of millennials and 59% of baby boomers admitted to this. If you’re in that group, you may find it beneficial to switch to a bank that better meets your needs. But what about the costs?
There are two costs of changing bank accounts. The first and most obvious is the financial aspect: How much money will it cost you to switch bank accounts? The second is the cost of your time and effort: How much work will it be? Let’s start with the work.
First and most importantly, it’s a myth that you’re better off keeping all of your accounts with the same bank. You won’t get a better deal on your credit cards, loans, GICs, high-interest savings accounts, and mortgage by holding them with the same financial institution as your chequing account. In fact, you’re likely to find much better deals on all of these financial products by shopping around and holding them at different financial institutions. So if you’re worried about having to move all of your accounts together to one new bank, rest assured you only stand to gain by seeking out the best deal for each individual account.
If you’re moving your chequing account, many banks also offer an automated switching program to help you move accounts seamlessly. These tools round up your regular deposits and automated payments and make sure they migrate to the new account. This also saves you time and effort.
You’ll need to spend some time comparing bank accounts to find the account that’s best for you. Most banks offer several different bank accounts with different features and fees. Using an online chequing account comparison tool can help make this job easier by estimating your monthly banking expense based on how you’ll use the account. You can also look for no-fee bank accounts that offer unlimited transactions with no monthly fee. A savings account calculator can help you find the account that offers the highest return on your money.
The financial expense of switching bank accounts is limited as well. Most banks are excited to welcome new customers and don’t charge any set-up fees for new chequing accounts. When closing your old chequing or savings account, you may need to travel to the branch (add your cost of gas!), and in some rare circumstances pay an account closing fee of around $15. You’ll also need to pay any outstanding debts to the bank (for example, if your account was overdrawn), plus interest and penalties. And don’t expect a refund on any fees you’ve paid.
You may also choose to keep your old chequing account open for a month or two after you’ve opened your new chequing account to make sure all of your regular payments make their way over. If you do this, you’ll incur the expense of keeping that account open even though you’re not using it.
Finally, if you do encounter problems with your regular pre-authorized deposits or debits (think payroll or bill payments) moving to the new account, you could be charged non-sufficient funds (NSF) fees by the bank, the billing company, or both. Each NSF charge will cost you about $40 to $50. To avoid this, it’s a good idea to look over your last 12 monthly bank statements before moving to a new bank and make sure every charge is accounted for.
Even though these expenses are possible, it’s very common that switching banks doesn’t cost anything at all. Most people find they can close their old account and open a new account without being charged any fees whatsoever.
If you’re transferring an investment account (such as an RRSP or TFSA) between discount brokerages, that’s a different story. Most brokerages will charge a fee to transfer out of around $150 per account. If you have several accounts, transferring all of them could end up costing several hundred dollars. Your new financial institution may offer to cover transfer costs, depending on how much is in your account.
For everyday bank accounts, however, the cost of switching bank accounts is very little—and the potential for savings is very high. If you’re paying $20 a month for your banking package like I was, that’s $240 a year just for your chequing account. Switching to a no-fee chequing account eliminates that expense from your budget.
Some banks also offer incentives for switching your chequing accounts, such as low introductory fees, gift cards, or a new TV. These are usually for paid accounts, and often require that you keep the account open for a certain length of time. But these incentives can be worth it if the account is right for you.
Similarly, you might find better deals for your other financial products by switching banks. If you’re with a Big Five bank, I can guarantee you’re not getting the best rate on your savings account or your GICs. If you have a mortgage from your regular bank without shopping around, you might be paying a higher rate than you need to as well.
Switching banks isn’t as difficult as it sounds and there’s a huge upside. While you may need to pay some initial fees to move from one bank to another, there can be huge savings over the long run when you earn more interest and don’t have to pay high monthly account fees.