 |
How to get a better rate from your bank
 |
Toronto Star- Walter Schlegl of Mississauga cut the interest rate on his line of credit nearly in half.
In Calgary, Shawn Kearns will save more than $100 a year with his new no-fee chequing account.
How did they do it? They switched banks to get a better deal.
Canada’s big banks are being squeezed by low interest rates and slowing demand for loans and mortgages. That means they’re more willing to compete for your business.
And that means consumers can come out ahead.
Now is the time to shop around for the best interest rate on loans and mortgages, or a better rate on a GIC or savings account. Or maybe you’re after a no-fee chequing account.
Will you ask your longtime banker to match the offer or take your business elsewhere?
“If you’re paying fees at a bank, by all means, it’s a great time to look at no-fee alternatives. It can be a significant savings,” said banking industry consultant David McVay.
Don’t be shy when it comes to asking your banker to match a competing offer on a loan or mortgage, McVay added.
“The market is very competitive and you will be successful in getting a rate match most of the time from your primary financial institution.”
One note of caution: as always, keep an eye on the fine print and ask plenty of questions. If you’re taking advantage of a special offer, when does it expire? Is the interest rate an introductory one, and when might it change? Is it tied to the Bank of Canada’s prime rate, which is expected to start moving up later this year? If there’s a cashback incentive involved, are there any instances when you would be required to pay it back?
Bank profits depend heavily on what’s known as the interest rate spread. These institutions take deposits in the form of chequing and savings accounts that pay little interest and lend out those funds for a longer term, at a higher interest rate, typically a loan or mortgage.
But when the Bank of Canada, like other central banks around the world, brought in historic low interest rates to quell the financial crisis, it changed the equation.
Mortgage rates are at the lowest levels in decades and consumers are clamouring for the best deal they can get, opting for variable-rate mortgages, rather than fixed-rate mortgages that carry a higher interest rate and are more profitable for the bank.
At the same time, the housing market is expected to slow and heavily indebted consumers are focused on paying down their existing debt, rather than taking out new loans.
That has banks trying to win over more customers and make up in volume what they are losing on the spread.
Royal Bank of Canada, for instance, has been running a splashy advertising campaign on its RBC Homeline Plan, which combines a mortgage and home equity line of credit. Right now, the posted rate for the five-year variable-rate mortgage is 2.8 per cent (the posted five-year fixed rate is 5.39 per cent) and the rate on the line of credit would be 3.5 per cent (RBC’s prime rate of 3 per cent plus one-half of a percentage point.)
Walter Schlegl had less than $100,000 on his mortgage when he moved it over to RBC a few weeks ago.
He had been paying 4 per cent on a line of credit at his other bank, about $400 a month in interest. When he found out he qualified for the Homeline Plan, he was able to negotiate an even better deal than the posted rate and fold the entire amount into a new, much lower mortgage rate of 2.3 per cent.
“It was like Christmas came early,” Schlegl said. “You can’t say no to that.”
Schlegl had to pay a $750 penalty to break the other mortgage, but he readily agreed, knowing the savings on his new lower interest rate would quickly make up the difference.
Soon after Schlegl switched, his previous banker called, asking what it would take to win back his business.
“I said it’s too late now. It’s something you should have considered earlier.”
RBC has been offering this interest rate for nearly two years, but recently formalized the campaign, said Marcia Moffat, vice-president of home equity financing at RBC.
“I think we’ve done a better job of telling our story with this campaign than we have in the past,” Moffat said. “The reaction of people who have taken advantage of this has been tremendous.”
The interest rate on the home equity line of credit can change at any time, though there are no plans right now to do so, Moffat said.
At Canadian Imperial Bank of Commerce, the Mortgage Switch Offer combines a five-year fixed mortgage rate of 3.99 per cent along with 2 per cent cash back, which consumers can use to offset mortgage penalties they incur by breaking their current mortgage. The cash can also be used for home improvements or savings, but it must be paid back if a customer breaks his or her CIBC mortgage early.
The mortgage switch was designed to address consumer concerns of reducing their debt load and mitigating the charges that come with breaking mortgage terms, said Colette Delaney, senior vice-president, mortgages and lending, at CIBC Retail Markets.
“We encourage clients to come in and have a conversation with our advisers, look at the competitive offers and how they can leverage those offers to really build the financial plan that’s best for them,” Delaney said.
Tired of paying service fees at one of Canada’s big banks, Shawn Kearns switched to ING Direct Canada’s new online no-fee daily chequing account, dubbed Thrive, about two months ago.
On top of saving the $12 monthly fee from his bank and other fees, he received a $100 bonus for switching his regular payroll deposit to his new account.
Now, he’s moving his savings account, Registered Retirement Savings Plan and Tax-Free Savings Account to ING as well.
“It’s a lot of work to switch banks but it seems worth it,” Kearns said.
“I think Canadians in general need to stop accepting poor service because that’s what we’re used to. You need to just stand up and say, ‘I’m going to take my business elsewhere, where I’m appreciated.’”
ING Direct president and chief executive officer Peter Aceto is skeptical about whether Canada’s banking market is becoming more competitive.
“The nuance is the Big Five are fighting but is it really competitive? There have always been questions about the competitiveness of the Canadian market when we pay the highest account fees and highest mutual fund fees in the world.”
ING Direct has opened about 70,000 new chequing accounts since Thrive launched seven months ago. Currently, it is opening 300 to 400 new accounts each day, Aceto said.
Peter Routledge, a bank analyst at National Bank Financial in Toronto, pointed out that while the industry is perhaps more competitive than it was a year ago, Canadian banks still enjoy very healthy profits in the domestic market.
“Within a price regime established by an oligopoly, there’s more competition, but the regime is still pretty attractive for the banks,” he said. “They make very attractive returns.”
Still, consumers can find good deals. Even if they want to stick with their financial institution, competing offers can be used as leverage when sitting across the table from the banker.
“My advice is to negotiate with your primary bank,” McVay said.
“There are few lives that go without setbacks. If you’re dealing with your primary bank, it’s more likely they will be accommodative than if all they have is your mortgage or a line of credit.”
585 page views
|
|
|
|