How to choose the best bank account for your money

In this photo illustration a woman uses a cashpoint ATM on November 3, 2017 in Bristol, England. (Photo by Matt Cardy/Getty Images)

Unless you’ve got wads of bills stashed inside your mattress, having a bank account is just one of the realities of the modern world. And these days, it’s easy to walk into any bank or sign up online to open an account, but knowing whether you have the right bank account is a much more daunting task.

Whether you bank with one of Canada’s Big 5 banks, with a smaller bank or with a credit union, Alyssa Furtado, CEO of Ratehub.ca, says consumers should be evaluating annually whether their bank accounts are meeting their needs.

“From our research, many Canadians know their primary financial institution isn’t necessarily giving them the best deal,” says Furtado. In fact, Ratehub’s 2017 Digital Money Trends Report found that 40 per cent of Canadians surveyed believed that their bank didn’t offer the most competitive rates on any of the financial products or services they currently used.

Time to change

Every so often, it pays to take some time to give your bank accounts a critical look, and see whether you’re getting a deal you’re happy with at your current bank.

“If you want to save every penny, you could jump from one promotional offer to the next and check your bank account fees every month,” says Kyle Prevost, financial expert at Young & Thrifty. “Most Canadians aren’t interested in that much paperwork though, so doing an hour or so of homework to figure out exactly what features that you value most, and then doing a quick skim of what’s out there every six months or so, might be a little more realistic.”

Personal finance expert Jessica Moorhouse says the best time to evaluate switching is when you’re redoing your budget. If you’ve just got a raise at work, or have a new expense in your life, she says it’s worth taking a critical eye to your bank accounts and see if they still fit with your new situation.

Furtado recommends reviewing your accounts once a year. She says there’s no real downside to switching accounts, if your new account better suits your needs.

And there’s no need to be worried about being a bank-hopper impacting your credit score.

“I’ve banked with almost every institution, and it hasn’t reflected badly on my credit score or anything like that,” says Moorhouse.

Goodbye, old account

Some accounts require you to close them in person, so there may be some travel to your local branch. There’s also sometimes a cost to re-open a closed account, so make sure you’re confident in your choice to switch.

Prevost adds that it can also be a time-consuming endeavor to close an account, and to set aside plenty of time to meet at the bank or be on the phone in order to shut down an account you’ve had for several years.

Moorhouse points out, though, that you don’t need to fully close accounts in some cases. If there are fees associated with that bank account, it’s worth closing, but if it’s a free account, there’s no point going through the hassle. It can take a couple of months to fully transition away from an account, otherwise.

When evaluating potential bank accounts, there are three key things to consider: what its primary purpose is, how you’ll be using it, and how often you’ll be transferring funds between accounts.

Chequing vs. savings accounts

“Anytime we talk bank accounts, it’s important to distinguish the primary purpose,” says Furtado.

“If you’re looking at savings accounts, it’s interest. If you’re looking at chequing accounts, it’s net return, the benefits of the account minus the cost.

Almost every bank offers some kind of incentive for switching banks to join, whether it be a cash or product bonus for opening a chequing account, or a promotional interest rate for a savings account. To determine whether it’s worth switching your chequing account, calculate the benefits that you’ll get with the account, like an upfront cash bonus for switching, and work out whether you still come out ahead once you include any associated fees for the year.

“There will always be promotions to attract new customers,” says Furtado. “You decide how actively you want to work to go after those perks.”

Likewise with a savings account, if you’re offered a promotional interest rate for the first six months, calculate what your overall average interest rate will be for the full year when comparing it to your current savings account.

Online vs. traditional banking

In Ratehub’s recent Best Bank Account Awards, one of the factors most highly valued by customers was the ease of opening an account. While Furtado says many banking customers are concerned about being unable to open an account online, banks are increasingly making the process easier.

“It’s not a bad exercise to go through one of the more online banks like EQ or Motive,” says Furtado. “As a user, I had some anxiety, like ‘is it actually going to let me open an account online?’ You end up being pretty delighted.”

Once you’re past the perks of opening that new account, you need to know that you can live with the new reality of it. For example, if you hate paying fees and don’t mind waiting a couple of days to get money you deposit in your account, Moorhouse says you’re likely a good candidate for an online bank. But you may be sacrificing some convenience for the low cost.

“It would be less convenient if I wanted to buy a home, though” says Moorhouse. “If I need to get a deposit, the big banks make it very easy. An online bank delays it a couple of days.”

Ease of transfer

The last consideration customers should make when opening a new account is how well it will interact with their other accounts.

“With the birth of online payments and checking balances online, it’s a lot easier to have the fragmented account setup, but it comes down to preference,” says Furtado.

For some people, having all of their accounts in one place helps to streamline the banking process and reduces the complexity of banking. Others may want to have multiple accounts in multiple places in order to maximize the value of each type of account.

Watch for RRSPs and TFSAs

Often, the inspiration for switching accounts comes when you receive a bonus at work – the desire to get the most out of the newfound money and wanting to put it into an effective savings vehicle is strong.

While switching a basic chequing or savings account is relatively straightforward, it can be a little more complicated to make the change with a TFSA or RRSP.

“Switching from one back to another counts as an addition contribution,” says Furtado.

She recommends if you’re looking to move your TFSA from one bank to another, it’s best to withdraw the amount you’re transferring in late December on year, and not depositing it until following year, in order to avoid any penalties for over-contributions to your TFSA.

The bottom line is, it’s not worth feeling beholden to a bank just because your first account was with them, or you’ve been with them for a long time.

Never just stick with the bank you’re currently with because you’ve been with them for 20 years,” says Moorhouse. “If it’s not the best service, or dinging you a lot of fees, take that extra minute to find what else is out there.”

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