The Cost of Using One Financial Provider

Craig Sebastiano
by Craig Sebastiano July 24, 2018 / No Comments

Having the same bank has its advantages: one debit card to carry, one online banking password and PIN to remember, and the opportunity to get a monthly discount if you have multiple products with the same institution.

However, there are some disadvantages to having all of your products with the same bank because other providers will often have higher GIC rates, better chequing account options, and lower mortgage rates. Over time, these differences can add up.

Let’s do the math and see what the costs are over a five-year period.

Chequing account—A chequing account is almost always a requirement if you have bills to pay or still need physical cheques. The costs can vary depending on the type of transactions you make every month. Assuming you make five bill payments, five ATM withdrawals, five debit purchases, two Interac e-Transfers, and write two cheques every month, your costs can be as low as $7 a month and up to $30.50 a month with a large financial institution. Over five years, this will cost between $420 and $1,830. If you get a Simplii Financial chequing account and make the same type of transactions every month, the cost over five years will be zero. Total savings: $420 to $1,830.

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High-interest savings accountYou would think a high-interest savings account will have a high rate. Unfortunately, this isn’t always the case for ones offered by the big banks when compared to smaller financial institutions. Most of the banks’ high-interest savings accounts have a rate of 0.5%-0.9% while EQ Bank offers 2.3%. If you have $5,000 in your account with a rate of 0.9% and let it sit there, you’ll end up with $5,229.09 after five years. If you have the same amount and the rate is 2.3%, you’ll have $5,602.07. The difference in interest earned is $372.98.

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GICsBig financial institutions don’t have very competitive GIC rates when compared to their smaller counterparts. A number of banks have five-year non-redeemable GICs with rates of 1.6%. If you invest $5,000 and the interest isn’t compounded, you’ll end up with $5,400 after five years. If you choose the same kind of GIC with a rate of 3.5% from a smaller financial institution, you will have $5,875 in five years. The difference in interest earned is $475.

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Mortgage—A mortgage will be the largest loan you’ll ever have in your lifetime. That’s why you should shop around because your current financial institution might not have the best mortgage rates. Not doing so can cost you. For example, if you have a $400,000 mortgage, put 5% down, and have five-year fixed rate of 3.74% with a big bank, you will end up making payments of $121,410 over five years. But if you shop around and are able to get a mortgage rate of 3.09%, you’ll make payments of $112,703. That’s a difference of $8,707.

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The bottom line

Overall, the total amount you will save and the additional interest you will earn can add up to between $9,974.98 and $11,384.98 over five years. That’s why using different financial services providers can make a real difference. While having one bank is convenient, it will likely cost you in the long run.

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