Can you be bribed?
The big banks think so. They're offering cash - as much as $250 - as well as reward points to get people to switch their chequing accounts, credit cards and mortgages.
Change for change's sake in banking is pointless. It's time-consuming and potentially costly because you expose yourself to a whack of fee-laden fine print at the new and unfamiliar bank you're moving to.
But if you're already thinking about bailing on your bank and are ready to ask a lot of questions, these deals are worth a look.
Toronto-Dominion Bank's TD Canada Trust division has been promoting a deal lately that offers up to $250 in cash to customers. All you have to do is open a Select Service or Infinity chequing account by July 23, and be approved for one of four TD Visa cards.
Read down the offer (check it out here: bit.ly/cAmUQe) and you'll find a few more requirements. Either you have to set up a recurring direct deposit and two pre-authorized debits, or sign up for the bank's Simply Save program. That's where money is automatically deposited into a savings account every time you use your client card for debit transactions or bank machine withdrawals. You also have to make 10 purchases on your new credit card by Sept. 30, 2010.
There's an awful lot of profit that comes from retail banking, and the most profitable element of retail banking is chequing-savings accounts. David McVay, consultant with McVay and Associates
Let's look at what you're getting into here. TD Select Service is a premium account allowing unlimited transactions and the monthly cost is $24.95. This fee can be reduced to $12.95 per month with the Infinity account, which also includes any number of credits and debits. You can have these fees waived by keeping $3,000 in an Infinity account and $5,000 in Select Service, but overdraft protection costs $3 per month.
As for the Visa cards eligible for this deal, they're reward cards that charge annual fees of $99 to $120. With fees like this, TD can easily make back the $250 it's giving you in 12 months or less. But that's not the only benefit to the bank here.
It's also encouraging you, the customer, to be a cheap source of money it can use elsewhere to make lots of money.
"There's an awful lot of profit that comes from retail banking, and the most profitable element of retail banking is chequing-savings accounts," explained David McVay, a financial services industry consultant with McVay and Associates.
Select Service and Infinity are typical of their kind in paying zero interest. Whatever you put in these accounts is essentially free money for the bank to lend out at rates of 2.5 per cent, the current prime rate, or more.
Royal Bank is trying something similar by offering RBC rewards to clients who are switching banks. Open an RBC Signature No Limit bank account, monthly fee $13.95, and you get 10,000 points. That's more than enough to get a $75 Future Shop gift card. Add an RBC Visa Infinite Avion card, annual fee $120, and you've got the points for a short-haul flight.
Note that RBC has a multi-product rebate, so you could cut your fees by giving the bank all or most of your business.
Both TD and RBC are targeting chequing accounts and the reason is that they're a gateway product for selling all kinds of other stuff to customers.
"If you're a bank, almost all your [retail banking]profit comes from people who operate their chequing accounts with you," Mr. McVay said. "Once you've chosen where you're going to do your everyday banking, that's where you're most likely to get your mortgage, personal loans and do your investing."
Other banks have taken a different approach to attracting new clients. Canadian Imperial Bank of Commerce is promoting lines of credit and mortgages using cash and fee waivers. For example, a set-up service fee of $499 is waived for the Home Power line of credit.
Two facts you should know if you bite on this offer: You must have a balance on your credit line averaging $30,000 in the four months after you open it, and you have to take a rate of 3.5 per cent (prime plus a percentage point). That's been the standard rate in the wake of the financial crisis, but you might be able to do better today.
Elsewhere, Bank of Montreal is offering free banking for a year for new Canadians, while Bank of Nova Scotia is offering to match contributions to various savings and investing products with a 10-per-cent bonus of up to $150.
If you can collect these bonuses by making a switch you were already thinking about, then snap 'em up. Otherwise, the bonus won't be worth it.
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