The Impossible Financial Product

Like most other Canadians, I am a bit appalled at the lack of financial education I received in public schools. I’ve had to educate myself on the best ways to manage my financial affairs through trial and (sometimes painful) error. Today I’d like to share some of what I’ve learned in the hopes that you can glean something from it! I’d like frame this post by asking you to imagine you had a financial product that had no annual fee, and offered you the following benefits:

  • Spending: 4% discount on Cafés, Restaurants, and Bars, 2% Discount on Groceries, Home Improvement, and Recurring Bills, 1.5% discount on everything else, and free (no-premium) exchange of foreign currency
  • Banking: 1.5% interest on your chequing account and emergency savings, free unlimited card and electronic transactions, free Interac eTransfers, free Cheques, free ATM usage, 1 free teller-assisted transaction per month
  • Investments*: Automatic contributions, buy/sell, diversification, re-balancing, and tax loss harvesting
  • Taxes: free electronic tax filing with an interface possible for a human to understand

This product sounds like it couldn’t possibly exist, right? Well you’re right it doesn’t, but it’s actually possible to accomplish with a little upfront work and creativity in combining a relatively small number of products from different institutions. The list above highlights the benefits I’ve managed to extract from financial service providers at a fraction of the cost any one provider can offer, and I’d like to share that with you today. I’m also considering this as one of my “evergreen” posts, and will therefore keep it updated as product offerings change in Canada.

The reality is, it does take some planning and discipline to realize these kinds of benefits without paying a monthly or annual fee, and at the end of the day if any one bank were to offer them as a package, they likely wouldn’t make money off of you as a client. Each provider seems to offer a “killer feature” in the hopes that you’ll use their products more broadly and that your overall business will earn them a profit. So I’m sure the banks aren’t too happy about customers like us that cherry pick the best offers from each of them and shop around for the best combination of products!

Spending

This is the area that most personal finance bloggers seem to focus in on, and that’s probably because spending is a fast-paced highly competitive segment of financial services. Think about how many credit card offers you’ve received by email, through the letterbox, or online! Something to establish upfront (assuming you have the discipline to pay your card in full every month) is that credit cards are the safest, and lowest-cost way to spend money. They are the safest because they offer liability coverage and security guarantees. If your card is used without your permission, your card issuer will give you the money back. This is typically a much more difficult process with debit cards/bank accounts. Credit cards are the lowest-cost way to spend money, because they effectively give you a discount on everything you buy.

I have a few key principles I employ when evaluating a credit card offer:

  1. Avoid annual fees unless you’ve done the math and you come out ahead considering the things you need to buy. Money you spent just to realize a card benefit is a successful marketing effort on the bank’s part, not a net benefit to you!
  2. Any benefit I outline here is meaningless if you don’t pay the card in full every month. Most credit cards have an interest rate of ~20% per year. On a $100 transaction held on your balance, you’ll earn a discount (cashback reward) of $1.50, but every month you don’t pay it off, you’ll pay $1.66 in interest charges!
  3. Stick to cash-back rewards over other forms of “points” programmes unless they really make sense for your lifestyle. Frequent business travellers for instance might achieve a higher reward value by participating in specialty travel rewards programmes, but most other people won’t. Since my focus in on Cash Back you’ll see me use what I see as the more appropriate label of “discount” throughout this article.

My Current Credit Card Complement & Their Associated Rewards
Each of these products has a broader set of rewards and features, but my list highlights the particular features that offer unique value / the reason this product is in the list. None of these cards have an annual fee.

Simplii Financial Cash Back Visa Card
– 4% discount on spending at Restaurants, Cafés, and Bars
Bonus: Get $50 if you sign up using my link.

Tangerine World Mastercard
– Choose three categories to get a 2% discount
– My choices are recurring bills, groceries, and home improvement
Bonus: Get $50 if you sign up using my referral code: 48310044S1

Rogers World Elite Mastercard
– 1.5% discount on everything else
– 0.5% net discount on all US Dollar purchases
– Access to airport lounges on a fee-per-visit basis
– Free Boingo airport wifi
– Free emergency travel medical insurance

Home Trust Preferred Visa
– The only no-annual-fee credit card in Canada with no foreign currency fee.
– Use for all foreign currency transactions (except USD), a 2.5% discount compared with all other cards.

Banking

Whenever I have an opportunity to talk personal finance with someone, I usually start by asking whether they’re paying any monthly fees for their banking. This is often the lowest hanging fruit when it comes to reducing cost, and can easily save you over $300/year. The reality is, saving that money comes with a compromise: switching to online/digital banking, and not everyone may be comfortable with this approach. In this section, I’d like to share a way you can retain the benefits of branch-based banking, but drop the fee (and get more services in the process).

The first misconception I’d like to clear up is that there is absolutely no reason you can’t have more than one bank! This is the secret to unlocking the kinds of benefits I’m talking about. Before you dismiss the idea as overly complicated and burdensome, hear me out, because you may not know just how seamlessly you can connect bank accounts you hold at different financial institutions in Canada.

First, just two rules I use when choosing the best banking products:

  1. No monthly fee.
  2. Must be CDIC-Insured. This means that up to $100,000 of your money deposited at each separate financial institution is protected in case the Bank goes out of business. This might go without saying, but is more important than ever right now as we are seeing many new kinds of prepaid bank-like products that in fact are not protected in this way.

My Current Complement of Bank Accounts & Their Associated Benefits
Each of these accounts have a broader set of services and features, but my list highlights the particular features that offer unique value / the reason this product is in the list.

EQ Bank Savings Plus Account (Online banking)
– I use this as my primary spending and savings account (bill payments, eTransfer, direct deposit, emergency fund)
– 1.5% interest earned on your balance (most major banks offer 0.1%)
– Has a great international money transfer system with very low fees.
Bonus: Get $20 free when signing up with my link.

Simplii Financial No Fee Chequing Account (Online banking)
– Free cheques
– Free unlimited CIBC ATM access
– Advanced Interac eTransfer features like AutoDeposit, and Request Money
– Money goes through this account in order to use the above features, but doesn’t stay there, I keep a floating balance of $100
Bonus: Get $50 free when signing up with my link.

RBC Day to Day Savings Account (Online & Branch Banking)
– 1 Free Debit transaction (money leaving) per month (including teller-assisted)
– I use this account infrequently in order to maintain access to a human teller when needed for special financial transactions like bank drafts, coin withdrawal, etc., I keep a floating balance of $50 here

A final note on mixing-and-matching banks
Canadian banks allow account-holders to connect their accounts from other banks using EFT (electronic funds transfer). Setting this up is free, only done once, and works the same way as when you provide a void cheque to your employer for payroll deposit. Once it’s set up, moving money between your accounts at different banks is as easy as moving it between two accounts at the same bank (albeit with a 1-2 day transfer period).

Investments

*You may have noticed that this section had an asterisk next to it in my introduction. That’s because I take a little bit of a looser approach to fees in this area. At my age (31), I’m a firm believer in aggressively investing my retirement and other major life savings since I have a relatively large time horizon on when I’ll need these funds. With that in mind, I’m more accepting of paying reasonable fees to ensure these funds are managed well. Obviously you should make investment decisions in consideration of your own life goals, circumstances, and tolerance for risk, but here’s my approach:

For the vast majority of my investments, I take a passive investment approach by assembling a variety of low-cost Exchange-Traded Funds (ETFs). These are basically mutual funds that trade on the stock market rather than through an investment advisor. As a result, these typically cost much less than Mutual Funds once you cut out the sales commissions and high management fees. Now here’s where I get a little bit looser on fees: although I could buy these ETF’s myself and save even more, I’ve decided to automate the whole process by using what has become known as a “Roboadvisor.” Robos are companies that design a well-planned system of portfolios that match their clients’ tolerance for risk, then the computers get to work methodically buying, selling, re-balancing, and tax-loss-harvesting a selection of ETF’s automatically. So, for this automation and convenience, I pay a fee for that service, which fortunately still works out to be much less than if I had gone down the Mutual Fund route.

My Investment Robo-Advisor

Wealthsimple Invest
– 0.4-0.5% annual fee for their automation
– Range of ETF portfolios matched to your risk
– Setup automatic contributions
Bonus: Get $10k managed for free for 1 year with my link.

The Fee-Free Alternative
Believe it or not, Wealthsimple offers another product called Trade which allows you to save those fees if you are looking for even more savings! Mind you, you’ll need to take on the work of tracking your investments and executing the trades yourself. They even post their portfolio contents online which you can use as a guide! If you’re an Excel guru, this approach is right up your alley!

Wealthsimple Trade
– No fee to make trades!
– Warning: all USD trades are converted to/from CAD every time
Bonus: Get $10 free to get started using my link.

A (final) note on investment fees
Investment managers are notorious for a long schedule of fees, burying fees into rolled-up figures, etc. Wealthsimple has (in my opinion) one of the most transparent approaches to fees. Firstly, they eschew most of the fees related to account management (transfer in/out, account closure, etc.), and they’ll actually pay fees charged by other institutions when transferring in. Keep in mind though, that the ETF’s you buy/sell through Wealthsimple still have their own management fee which you pay simply by receiving a reduced return on those investments. ETF’s management fees are typically in the range of 0.01% to 0.5%, so they’re still comparatively low!

Honourable Mentions

An article on great personal financial products wouldn’t be complete without mentioning some of the following, which in my experience have helped me save even more!

  1. Free weekly online credit score/report through Borrowell (Equifax) and Credit Karma (Transunion)
  2. intelliMortgage: A great online mortgage search/comparison tool built in Canada
  3. Sonnet Insurance: an online home and car insurance company with great rates, and discounts for University Alumni.
  4. Until you have a chance to properly sort out your estate plans with a lawyer, Willful is a super easy way to create a basic will.
  5. Save an extra $50 and do your taxes yourself! What used to be called SimpleTax has been purchased by Wealthsimple and is now Wealthsimple Tax. It’s free to use even if you don’t use Wealthsimple’s other products that I’ve outlined above!

Final Thoughts

When it comes to choosing financial services and products, the most important lesson I’ve learned has been to shop around and mix and match the products from different institutions. No one provider will offer you the “Impossible” product I outlined above, so you’ll have to build it yourself!

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