In this article, let’s look at all the possible scenarios to save money from paying the bank’s interest fees and charges.
All of our banks usually charge us interest for the services they provide – such as monthly chequing 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 though you have used the overdraft facility for only once in the month, you are still liable to pay the monthly overdraft account fees.
To Save Money From Paying Bank’s Fees and Interest Charges you are possibly looking at the following scenarios and options –
1. Don’t ever use the overdraft amount in your chequing account
2. If you have a credit card – always pay back the balance in full, never ever carry the balance forward. The interest rates are huge (19.99%) for balances carried forward.
3. Always have one credit card with low-interest fees – just in case for balance transfers
4. Be aware of the minimum end of the day balance amount required in your chequing account to avoid paying the monthly fee
5. Keep track of your credit score. Let’s discuss each of these points one by one.
5 Ways to Save Money On Bank’s Fees & Interest Charges
Here are my 5 Best ways to save on the Banks Fees and Interest Charges:
1. Don’t Use Your Bank’s Over Draft Facility
We all have a chequing and savings account, might be with RBC, CIBC, TD or any of the other banks.
Now with the chequing account, you’ll usually get the Overdraft facility tied. Every account has a different overdraft amount set, which will increase over time as your credit history builds.
In case, you make use of the overdraft amount, by chance, the bank charges you daily interest on the amount you owe along with a fixed monthly charge or sometimes even at $5 per day charges.
So you really need to be careful and make sure you read all the fine lines before opening the chequing account or choosing one.
Also, have a look at your monthly bank statements and make sure you correct or change the account type before paying those high monthly bank fees and interests.
Quick helpful line – When it comes to chequing accounts, banks usually have multiple tiers, depending on your needs and use, choose the one appropriate to reduce bank fees and monthly charges.
2. Always Pay Back 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 pretty standard and common across all the major banks.
The best part is, you’ll get the grace period for the purchases you have made today and don’t ever skip the payment due dates.
In case you will not be able to make the payment in full, at least make sure that you will pay the minimum amount on or before the due date. This way, you won’t hurt your credit score in the immediate run and also, your account will be in good standing in front of the lenders.
Now, honestly speaking, another fair point to mention here is, never ever utilize your credit limit (the combined limit for all your credit cards) more than 30%. That should be the max you’re going to use month after month. Always keep your credit utilization low.
Also, never ever hit the credit limit cap (100%) on any of the credit cards.
The best thing to do here is, based on your income and spending appetite, have more credit cards if required. Like, a combination of a couple of cashback credit cards, rewards cards and no-fee credit cards. Mix and match the purchases with credit cards offering the highest reward value for the particular store and purchase amount. Rinse and Repeat.
Also, have that one credit card with a low-interest rate, in case you happen to lose the job or something goes wrong, you can always make use of the $0 annual fee and low-interest credit card for balance transfers.
You can also pre-authorize your chequing account to pay the credit card balances in full before the due date and if you can’t then at least to pay off the minimum amount. Just to be on the safer side.
3. Always Have One Credit Card with Low-Interest Rate
As we just discussed, this is in continuation of the previous point that I was discussing.
Instead of applying for a new credit card when the need arises, always keep a no annual fee, $0 low-interest credit card handy.
If you don’t use it, well and good, 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, be it for even $5 and paying it off monthly.
When its tough and hard times, you can use the balance transfer facility and move the credit card balance from other premium high-interest credit cards over to this card and save huge money paying interest.
Now, that’s the sole purpose of me recommending keeping a no annual fee, low-interest credit card in the first place.
You have a ton of options when it comes to the no annual fee, low-interest credit cards. Do check out my other articles in this blog to find out which one suits your needs.
4. Minimum Amount To Be Maintained In Checking Account To Avoid Paying Monthly Fees
So here’s the thing right, all of our chequing accounts come with some pre-requisites, especially when you are banking with the big five banks – TD, CIBC, RBC, BMO and Scotiabank.
Consider my case – I have the smart plus chequing and savings account from CIBC. The monthly fee is close to $30.
I have never ever paid the monthly fees to date.
How Did I Do This?
Simple, I usually 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). Also, apart from the minimum daily balance requirement, the bank might also want you to preauthorize two bill payments such as your cell phone bill, hydro, mortgage, pay deposits etc. One more thing, certain banks will also ask you to have multiple accounts in the same bank – such as TFSA, RRSP, RESP accounts. This is to tie you to the same bank for multiple businesses and services.
With the above-said point, you can skip paying the monthly fees. Now, don’t just think you are saving it monthly, think about the long term, I mean annually that’s huge savings.
$30 a month in bank fees multiplied by 12 is $360 every year!
But mind you, you’ll always need to make sure that the minimum account requirements are met. Even for a day, if the balance goes down, for instance, you lose the benefit and pay the bank fee.
5. Having A Good Credit Score
Now, this my friends is the root cause of all your interest rates and fees.
No, no don’t get me wrong here.
The bank’s fee and service fees have nothing to do with your credit score. It is pretty much standard for everyone. But, where the difference actually sets in is – when you modify your services or apply for a limit increase for example. Example – applying for a Line Of Credit Or Mortgage.
All I am saying is, you should always be on the better side of the fence. Don’t be in a situation where things are going the other way.
Better be prepared, than sorry.
Say, for example, your bank account fees are way too high and your shopping around for a new no-fee chequing account and you get denied for lack of a good credit score. Now, that’s what I am talking about.
Always maintain a good credit score. There are lots of websites and apps to check your credit score online. You have creditkarma.ca, Borrowell, almost all the major banks – RBC, TD, CIBC have the credit score functionality built into their apps and website. Also, checking your credit score, won’t impact you in any way as it is considered a soft check.
Any of the new services you buy such as a new cell phone service or applying for a new credit card is usually considered a hard credit hit enquiry on your file. Also, do not frequently apply for new products, if your credit file has more credit inquiries, you tend to be on the wrong side for the lenders.
Always try to avoid paying late payment fees, bank charges and interest payments to the banks.
You have plenty of excellent no-fee chequing account in Canada, which you can look out for.
Also, be aware of the bank account fees and credit cards you have, read the fine lines it’s always very important.
If you are not satisfied with the financial product you have, you always have the option of shopping around, so make sure your credit score is good. With that said, there are plenty of online-only banks with top-notch features that the big 5 banks cannot compare.
That’s all for now, please share, like and comment on this post with your thoughts.
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Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.