I got an interesting comment to my “bitching” about the jump in service charge on the TD Safety Deposit Box. It got me thinking about another great trick the banks have devised. That is the offering of “free banking” services if you carry a minimum balance in your bank account.
The comment almost seems from a TD employee (but that is only my guess). The commentary points out that if I were smart enough, I’d carry the minimum balance ($5000). Then it would be:
“… saving all these fees which would be similar to making the money in an investment….”
To me, that is a staggeringly exciting leap of faith. Pinning down $5000 a year in an account with a rate of return of 0.00% annually, is a good idea? Is this an excellent investment because I have saved $60?
The comment’s author is mistaken. It isn’t listed on the website that the Safety Deposit Box Fee is waived for the Infinity account (it is for the Plan60 account, and there was another one listed, which I can’t remember). I will be going into the bank next week and asking if this fee can be waived for the year. It never hurts to ask.
Even more interesting is that I am not complaining about the Fee for the Safety Deposit Box (I Safety Deposit Boxes are a good idea if you want to keep your stuff safe remember The Safety Deposit Box: Our Friend ), I was complaining about the price hike, which was astounding. Yes, the fees for losing a key and getting your box drilled are penalties, which are your fault (much like overdraft fees), but jumping the cost by 42% is a pretty big jump.
The question I leave you, is this: Is leaving a sizeable minimum balance in an account to avoid banking fees really like investing that money? My opinion is no.
Free Banking
Of course, there are plenty of folks that offer free banking
$5000 sounds like a lot of money in one spot. I do, however, keep the minimum deposit in three accounts spread over two banks. It totals $4000 and saves about $12.75 a month in fees. I need all three accounts and I look at the deposits as tier one of my emergency fund.
I don’t think it is like investing money. Say you pay $5 per month unless you keep $5k in the bank – that is 1/1000th – or 0.001% return. Hardly an “investment”.
That being said I too fall victim to the minimum balance for no fees. Our Smith Manoeuvre is @ BMO and for simplicity sake + audit trail purposes we keep $1000 sitting idle in a BMO chequing account to avoid a monthly fee.
Mark is right — getting a “$170/year” credit card by giving up the opportunity cost on $5000 is not an investment; nor is it frugal. The best credit card in Canada is free – the MBNA SmartCash MasterCard. 3% cashback on gas and groceries, and a cheque everytime you accumulate $50. That TD Visa has points and restrictions and variable cost structures — Remember: CASH IS KING. Also, ya’ll need to look into credit unions.
When you “invest” $5K and earn $60, you end up with $5,060 at the end of the year, not $5K!
As for “safety” someone once asked a bank robber:
“Why do you keep on robbing banks? (apparently they are quite lenient on you if you don’t hurt anyone)
He replied: “Because that’s where the money is!”
What I don’t think I stated very clearly (I was still working on my first cup of coffee) is that to get a $60 fee refunded it’s ridiculous, to get any real return the fees refunded have to be fees you’d be paying cash for otherwise.
Also, $50 in avoided fees is generally worth slightly more than $50 in interest because the interest is taxable income.
I do exactly what you’re discussing in the article. I park $5k in a TD account to get my fees reimbursed. You’re mistaken on the accounts. It’s the select service account not the infinity plan that has the small safety deposit box included.
I do believe that I’m investing the $5k and I think I’m getting a good guaranteed return on it. I get $60 off my safety deposit box, an included visa infinite card ($170/year) which has replaced my SPG Amex (also $170/year) and my travel insurance ($140/year), included US$ account ($5/month) and all transactions including cash withdrawals overseas ($3-6 per withdrawal) and certified cheques are covered.
Im only counting fees that I would have had to paid for previously but I think I’m doing pretty well, just not well enough to make it profitable if I had to pay the monthly fee.
FWIW I’m not a TD employee, just a long time customer who does exactly what you talked about.
Excellent explanation, I don’t think I agree with your logic, but I think that is only my OPINION, I don’t think you are doing anything wrong, just I don’t think I’d do it.
Good take!