Since my income tax post went off well, I figured I’ll back it up that with another money post.
It’s no secret that banks are making a larger portion of their profits from fees. With interest rates at an all time low, those fees for ATM, checks, Interac, etc. really helps to pad the bank’s bottom line. One of the best ways to making a return on your money is by eliminating these fees.
My Select Service account at TD Canada Trust cost $24.95 per month. However, that fee is waived if I maintain a balance of $5,000 or more. By keeping $5,000 in the account, I will save almost $300 a year in fees and still get all the added features (Interac, ATM, traveller’s checks, etc.) for free. That works out to a 6% after tax return on my money, which is not bad for a 100% safe investment.
Now you might say I didn’t make the money – I saved it – but it’s really the same thing. Were I to take the $5,000 and put it into a 6% GIC or T-Bill (assuming there is one that pays that much), I would make $300 in interest in the first year. However, this money would be taxed. At the 43% tax bracket, I would need to increase the rate of return to 10.5% in order to net the same after tax return as just leaving the minimum balance in my bank account.
If you’re paying bank fees that could be avoided with a minimum balance, then you need to top the account up to waive the fees. A dollar saved is a dollar earned.