Outwitting the banks - accounts

Banks are in business to make money, not to help you. So take everything they tell you or try to sell you with that in mind.
This posting is specifically about accounts you keep with banks to manage your money.
You should have two:

• chequing account
  
• savings account (tax free / TFSA)
  

Chequing Account

The chequing account is the work horse, it is the central point of your financial transactions, you deposit your pay cheque here, you pay bills you transfer money from it to your savings account.

You need to have an account with a bank or a credit union and banks are in it to make money so you'll want to minimize the fees you pay:

• Try to avoid using ATM's that don't belong to your bank, you'll be hit with double convenience charges ~$1.50 by your bank and ~$1.50 by the other bank. So that's $3.00 you've volunteered to put in the bank's pocket so you can have a quick withdrawal. Wouldn't you rather have a coffee or a beer with it than give it to the bank? Instead:
  
  
  • Withdraw enough from your bank's ATM every time you go. Each time try to imagine a rough estimate of your cash needs in the next few days.
  • Use your debit card to pay for something and ask for cash on top of your charges.
    
  • Use a credit card instead this time ONLY IF YOU KNOW YOU CAN AND WILL PAY IT ON TIME IN FULL Credit cards are covered in another posting :)
    
• No fee chequing accounts are not available in Quebec at this time. I know of one that is available in the ROC from President's Choice so hopefully there will be one here in the future... The way to minimize fees is to have the right account for your activity. Most banks base their fees on the minimum balance and activity in your account. So check your activity if it is around 10 transactions a month or less (ATM + cheques + transfers) then you can have an account with a fee of about $4 at most banks. Be careful though if you go over 10 transactions they will start slapping you with fees so keep track of your account activity.
  
• So what are the fees ?? I checked the various banks' websites and gathered the basic fee info which you can see here in a google doc It doesn't include some deals that you can get if you use some of the bank's other products. The Waived Fee Equivalent to earning is the interest rate you would have to have to earn the fee on the Minimum balance to waive fees
  Ex: You need to earn a 5.37% rate on $2000 to earn $8.95 / month (and you'll have to pay taxes on it of course)
  

Savings Account

A savings account can be a great tool also but it is not something you use every day. The best way to work with a savings account is to have an automatic deposit to it a couple of days after you get your pay cheque. It is good to transfer a minimum of 10% of the amount you are paid, go for 10% before taxes if you can, increase it when you can. Pay Yourself First This idea is thanks to David Chilton and his excellent book The Wealthy Barber

Warning, digression: The real secret with money is not to have a lot of it but to use what you have and time. Time is the magic ingredient for growing a little money into a lot. I will cover this in more detail in another posting.

Interest earned is considered taxable income in Canada so to apply "better in my pocket than the government's" it is a best practice to open a tax free savings account. These accounts are not subject to income tax (started in 2009). So:

• Open a tax free savings account (you can put a maximum of $5000 a year into it)
  
• Set up an automatic transfer of funds from your chequing account to your TFSA @ pay day + 2 days
  

Savings accounts generally have lowish interest so let it accumulate for a while, once you have $1000 or more it may be time to move it. But investments are a subject for another post. Your money is better in your own pocket than anywhere else.