One of the most important financial literacy lessons you can teach young people is how to deal with banks.
Banks are in retailing more than anything else. They sell financial products and services and compete hard for business. If you don't like the deal one is offering, try another. Also, banks don't have a policy of putting the interests of customers first. The point of being a bank is to make money for shareholders and this they do with great success. If bank shareholders and customers can both be happy, then great. If not, then shareholders come first.
Managing a relationship with a bank is one of the topics that Globe and Mail personal finance editor Roma Luciw and I will discuss at the financial literacy sessions we're holding at East Coast universities this week. With financial support from the non-profit Canadian Foundation for Economic Education, we're visiting Mount Allison, Saint Mary's, Acadia, Mount Saint Vincent and Dalhousie.
Our message to students is that banks aren't your friend, and neither are they your enemy. They're companies you do business with and that means you have to have to go in prepared to defend your own interests.
Student bank accounts are a great example of how you have to stay sharp when dealing with banks. No question, banks want to be seen as being supportive of students. While seniors don't usually qualify for automatic free banking any more, no-cost accounts are widely available for high school, college and university students.
So one account is as good as another, right? No way. While there are many student accounts that offer unlimited transactions at no cost, there are still a few from the big banks that charge fees once you exceed a preset number of debits, bill payments or withdrawals.
For example, both the TD Every Day Chequing Account With Student Discount and RBC Student Banking Account offer 25 free transactions a month. After that, the TD account charges $1.25 a transaction and the RBC account charges $1. Twenty-five debits a month may sound like plenty, but my sense from looking at how my 19-year-old and 22-year-old sons bank is that many students will go over that.
Young people have a responsibility to monitor their own banking habits, which means regularly checking account statements online to see what fees, if any, have been charged. Banks cannot be counted on to alert a young client that he or she is racking up extra charges in a student account. In fact, it's in a bank's interest not to do so. Those extra fees are bonus revenue that helps feed profits and, in turn, dividends paid to shareholders.
Students should bank for nothing – banks have plenty of opportunities to make money off them through student lines of credit and, later on in life, mortgages and investments. If students do incur fees, the next step is to find out how to avoid them. At RBC, for example, there's a student account with unlimited transactions that costs an excessively high $10.95 a month. If you raise this with an RBC banker, you'll find that fee can be waived if you have an active credit card and active investments with the bank.
I'm coming around to the view that students should have a credit card (let me know if I should explore this in a future column), but expecting students to also have investments is harsh. There are plenty of other banks and credit unions out there with student accounts that offer no-cost unlimited transactions with zero conditions.
For example, Bank of Nova Scotia's Student Banking Advantage Plan and Canadian Imperial Bank of Commerce's Advantage for Students both offer unlimited debit transactions at no cost. The country's two online-only banks, Tangerine and President's Choice Financial, have unlimited no-fee chequing accounts for all clients, and a growing number of credit unions are offering them as well.
A recent Ipsos survey found one area where there is no generational divide: 82 per cent of millennials have never dealt with a company that is not a financial giant for banking and investing services, compared with 83 per cent for baby boomers. Sticking with the big banks is like only shopping at malls. Financial literacy at any age means being a smarter consumer than that.
Four more considerations for evaluating student bank accounts
1. Interac e-transfers
RBC and some credit unions don't charge clients with chequing accounts for this hugely useful service; others may give you one or two free e-transfers a month and then charge, while others may charge for each transfer; fees are usually in the $1 to $1.50 range.
Tangerine's chequing account pays 0.25 per cent, which is unusually high for a chequing account; still, you should keep your savings in a high-interest savings account and not a chequing account.
Big banks have the most bank machines, but credit unions have their own national network; Tangerine clients can use Bank of Nova Scotia ATMs, while PC Financial clients can use bank machines offered by CIBC. CIBC operates PC Financial along with Loblaw Cos. Ltd., while Scotiabank owns Tangerine.
If you mainly use a smartphone for banking, ensure the bank you choose has a decent app.
Find more money tips in our smart student money guide.