RBC posted profits of $9 billion in 2014, an increase of $622 million from the year before.
On March 1 they announced a fee change which included an extra $5 to $10 for cheque certification; $2 more for stop payments; $1 to $5 for every debit transaction over the monthly allotment in certain accounts, including withdrawals to pay one’s own mortgage, loan, and credit card.
RBC was the most profitable company in Canada in 2013. The second, third and fourth most profitable companies were TD, Scotia and BMO. CIBC, the poor relation, was the sixth. They all also announced fee increases this year.
Who’s winning in this scenario?
The shareholder. Every time.
The bank, along with all public businesses, only care about you to the extent you can help them deliver value to their shareholders. See Kevin O’Leary, King Capitalist, explain this.
Who’s losing in this scenario?
The consumer. Every time.
Banks make their money these days primarily by raising fees. Canadians are extremely apathetic, extremely loyal to their banks and extremely risk averse, so most simply put up with it.
But you don’t have to.
Thanks to digital age, banks have democratized along with everything else.
Switch to a full-service low-fee bank account like PC or Tangerine, and dump your savings in a Manitoba credit union –here’s a comparative chart of low/no-fee banks that offer the highest-interest rates on savings accounts in the country.
Then buy shares in the bank you just left and get rich off all the other Canadians who put up with the fees.
This applies to all consumer industries, by the way.
Obsessed with Starbucks?
Instead of buying a latte, save up and buy a share. Then if you please, buy coffee from the dividends.
Start buying your mouthwash from Dollarama and snapping up J&J stocks.
This isn’t a new idea, and one I’ve been putting into practice for some time, but Derek Foster’s The Lazy Investor explains it as well, on page 29:
Don’t buy the banks’ crummy products – wherever possible buy the banks’ stock instead!
At the time of this writing, I can buy the stock of…[Scotiabank] with a dividend yield of 3.35%. In other words, if you buy bank shares instead of depositing money with the bank you can get 3.25% on your money. This beats the highest interest savings account it offers and is competitive with the GIC rate. In addition, dividend income attracts a much lower rate of tax than interest income.
So bank shares rather than bank products is the place where you should consider directing your savings.
And that’s how to win at capitalism folks.
There are 3 comments
For a while I kept most of my savings at Tangerine, capturing that 0.1% difference in interest; then I saw that my credit union – VanCity – was paying not only a decent cash ‘dividend’ to the ‘shares’ account, but also bonus/rebates to savings/mortgages/credit cards. The most recent addition to their bonuses was on investment accounts: my ‘dividend’ this year was over 10%; that is of course fully taxed as income.
Oh yeah, my point: credit unions seem to have taken back the advantage held by ING/Tangerine.
Credit unions are great!
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