In this article, let’s look at all the possible scenarios for saving money by paying interest fees and bank charges.
All of our banks generally charge us interest for the services they provide – such as monthly checking account fees, credit card interest for regular purchases (19.99%) and cash advances (22%), overdraft interest fees – both on the money you owe on a daily basis.
Even if you have only used the overdraft facility once a month, you are still required to pay the monthly overdraft account fee.
To save money on paying bank fees and interest, you may be considering the following scenarios and options:
1. Never use the overdraft amount in your checking account
2. If you have a credit card, always pay off the balance in full, never carry the balance. The interest rates are huge (19.99%) for carried over balances.
3. Always carry a credit card with low interest fees – just in case for balance transfers
4. Be aware of the minimum end-of-day balance required in your checking account to avoid paying monthly fees.
5. Keep track of your credit score. Let’s discuss each of these points one by one.
5 Ways to Save Money on Bank Fees and Interest
Here are my top 5 ways to save on bank fees and interest:
1. Don’t use your bank’s overdraft facility
We all have a chequing and savings account, whether with RBC, CIBC, TD or any other bank.
Now, with the checking account, the overdraft facility will generally be linked. Each account has a different overdraft amount, which will increase over time as your credit history builds.
In case you use the overdraft amount, by chance the bank charges you daily interest on the amount you owe along with a fixed monthly fee or sometimes even a $5 per day fee.
So you really have to be careful and make sure you read all the little lines before opening the checking account or choosing one.
Also take a look at your monthly bank statements and make sure to correct or change the account type before paying those high monthly bank fees and interest.
Quick Help Line – When it comes to checking accounts, banks usually have several tiers, depending on your needs and usage, choose the one that suits you to reduce bank charges and monthly fees.
2. Always pay off your credit card balances in full
Now this one is pretty important.
Credit cards have huge interest rates and especially in Canada, the interest rates are 19.99% for regular purchases and 22% for cash advances. These interest rates are fairly standard and common to all major banks.
The best part is, you’ll get the grace period for purchases you made today and you’ll never miss payment due dates.
If you are unable to make the full payment, at least make sure you pay the minimum amount by the due date. This way, you will not harm your credit score immediately and your account will also be in good standing before the lenders.
Now, honestly, another fair point to mention here is to never use your credit limit (the combined limit of all your credit cards) more than 30%. This should be the most you use month after month. Always keep your credit utilization low.
Also, never reach the credit limit cap (100%) on any of the credit cards.
The best thing to do here is, depending on your income and spending appetite, have more credit cards if necessary. For example, a combination of a few cash back credit cards, rewards cards, and no-fee credit cards. Mix and match purchases with credit cards offering the highest rewards value for the particular store and purchase amount. Rinse and repeat.
Also have this credit card with a low interest rate, in case you lose your job or something goes wrong, you can always use the $0 annual fee and low interest credit card for balance transfers.
You can also pre-authorize your checking account to pay credit card balances in full by the due date and, if you can’t, at least pay the minimum amount. Just to be extra sure.
3. Always carry a credit card with a low interest rate
As we just discussed, this is a continuation of the previous point I was talking about.
Instead of applying for a new credit card when the need arises, always keep a no-annual-fee, low-interest credit card on hand.
If you don’t use it, that’s fine, you don’t owe anything to the bank and pay no interest. With this, you will actually build your credit history over time, even by making small purchases, whether it’s for $5 and paying them off monthly.
When times are tough and difficult, you can use the balance transfer feature and transfer your credit card balance from other high interest premium credit cards to this card and save a huge amount of money by paying interest.
Now, this is the only purpose why I recommend keeping a no annual fee, low interest credit card in the first place.
You have a ton of options when it comes to no-annual-fee, low-interest credit cards. Check out my other articles on this blog to see which one fits your needs.
4. Minimum amount to maintain in the current account to avoid paying monthly fees
So there you have it, all of our checking accounts come with certain prerequisites, especially when banking with the big five banks – TD, CIBC, RBC, BMO and Scotiabank.
Let’s take my case: I have the CIBC smart plus checking and savings account. The monthly fee is close to $30.
I have never paid the monthly fee to date.
How did I do this?
Simple, I generally maintain an average minimum daily balance at the end of the day (the average daily balance depends on your account type and each account has different limits set by the bank – make sure you know this information). Additionally, apart from the daily minimum balance requirement, the bank might also want you to pre-authorize two bill payments, like your cell phone bill, electricity bill, mortgage, salary deposits, etc. One more thing, some banks will also require you to have multiple accounts with the same bank – like TFSA, RRSP, RESP accounts. This involves tying yourself to the same bank for multiple businesses and services.
With the point mentioned above, you can avoid paying monthly fees. Now don’t just think that you are saving monthly, think about the long term, I mean every year that adds up to huge savings.
$30 per month in bank fees multiplied by 12, that’s $360 each year!
But be careful, you will still need to ensure that the minimum account requirements are met. Even for one day, if the balance decreases for example, you lose the advantage and pay bank charges.
5. Have a good credit score
Now, my friends, this is the root cause of all your interest rates and fees.
No, no, don’t get me wrong.
Bank fees and service charges has nothing to do with your credit score. This is pretty much the norm for everyone. But where the difference is really felt is when you modify your services or request a limit increase for example. Example: apply for a line of credit or a mortgage loan.
All I’m saying is that you should always be on the better side of the fence. Don’t be in a situation where things go the other way.
Better to be prepared than sorry.
Say, for example, your bank account fees are way too high and you’re looking for a new no-fee checking account and are turned down because you don’t have a good credit score. Now, that’s what I’m talking about.
Always maintain a good credit score. There are many websites and apps to check your credit score online. You have creditkarma.caBorrowell, almost all major banks – RBC, TD, CIBC have credit score functionality built into their apps and website. Additionally, checking your credit score will have no impact on you as it is considered a soft check.
Any new service you purchase, such as new cell phone service or applying for a new credit card, is generally considered a major credit inquiry on your report. Also, don’t apply for new products frequently. If you have more credit inquiries on your credit report, you tend to be on the wrong side for lenders..
Conclusion
Always try to avoid paying late fees, bank charges and interest to banks.
There are many great no-fee chequing accounts in Canada that you can check out.
Also, be aware of bank account fees and credit cards you have, reading the fine lines is always very important.
If you are unhappy with the financial product you have, you always have the option to shop around, so make sure your credit score is good. That said, there are plenty of online-only banks with top-notch features that the big 5 banks can’t compare to.
That’s all for now, share, like and comment on this post with your thoughts.
