Everyone talks about having a high interest savings account. Recently I’ve seen people who have these high interest savings accounts to save things like emergency funds, Christmas spending and other such prudent savings. However some people do this at the expense of keeping the minimum required in their checking accounts to have the monthly fees waived. What rate of return would you get if you paid yourself this fee instead of the bank?
In my personal example I have to keep $3,000 in the account to waive a fee of $13.95 per month. This works out to $167.40 per year. The only requirement the bank needs is for me to avoid paying this fee is to have no single day with an account balance of less than $3,000 in any given month. Now saving this monthly fee will work out to a rate of return of 5.58% per year. I can take that bank fee and pay it towards debt or whatever I want to do with it.
In another example I found. Jessie, from Jessie’s Money has to keep $1,000 in the checking account to avoid a monthly fee of $12.95. This works out to a yearly fee of $155.40. In keeping just the $1,000, Jessie will earn 15.54% by not paying that fee to the bank every month. thats a pretty good return.
The only issue with this is the more you keep in the checking account the lower the rate of return on keeping the money there. Also saving this fee doesn’t compound. If I double the money in my account I cut the rate of return on my money in half. However when comparing the rates of return of high interest savings accounts, take into consideration the cost of the banking fee at your current checking account. Make sure you keep at least the minimum in your checking accounts.
November 3, 2009 at 9:43 am |
You make a really good point – once I hit the $1,000 mark in my Efund – I just might transfer it over to my chequing account.
November 3, 2009 at 11:13 am |
I have an honest question. With no bank fee options available (ie; PC banking) why would you remain in a situation to be “forced” into having a minimum in your account to avoid banking fees? Is it because you don’t like the restriction of online banking only? or is there another reason that I don’t see?
November 3, 2009 at 2:24 pm |
@ Joanne – Are you American? I’m thinking you might be. There are very few (if any) free options with Canadian banks. ING for example, is only a savings bank in Canada, you cannot have a chequing account with them.
November 3, 2009 at 5:45 pm |
No I am Canadian. I have a Presidents Choice banking account that I have had for years – the only down fall is that I don’t have “counter privileges” that you would have at a traditional bank but given 99% of my banking is electronic its easier than providing the bank with a buffer to save me banking fees when I can have a fee free account and decide what I want to do with that “buffer money”. I do however, have a LOC with TD (balance 0) that allows me some counter privileges but I do not have a savings/chequing account with them.
I had had a bank account with Bank of Montreal for many many years and was so frustrated with them that I closed everything and went to PC.
Like I said I was just curious. To each his own and I was just trying to understand.
November 4, 2009 at 4:02 pm |
I was also curious as I’m also a PC Financial person. Free banking for over 10 years now.