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Financial products on the cheap

Many financial products have been commoditized, ROB CARRICK writes, so it makes sense to comparison shop. With that in mind, we've created a proprietary guide to low-cost Canadian services

00:00 EST Saturday, November 24, 2001

It's time to take financial products off their pedestal and lump them in with all the other things we buy on price.

Think of buying gasoline or milk or toothpaste -- mostly, you'll go for the cheapest option. So why not do the same with chequing accounts, mortgages and the like?

The financial services industry has done a great job of promoting the idea that image and relationships are what matter, not price.

But on commodity products like mortgages, nothing's more important than price. Chop a percentage point off your mortgage rate and you have the potential to save hundreds of dollars in savings a year.

Now, how do you find the low-cost provider for the financial products and services you use all the time? You could comparison shop, but you'll find it time-consuming and often confusing.

That's why we've created The Globe and Mail's first Cheapskate's Guide to Personal Finance. Most of the financial products you use all the time are listed here.

Before we go into details, there are a few provisos. One is that the cheapest products in the financial world often require you to go on-line, which means you'll need access to an Internet-connected computer. Most likely, you'll also have to deal with customer-service types over the phone and not face to face.

Also, the cheapest product isn't often the best of its kind, but then it's rarely the worst. In a cost-benefit analysis, you'll make out just fine.

A final warning: You may not be familiar with some of the names and products mentioned here. A big reason why a company can be a cheap operator is that it doesn't spend a lot of money on marketing to get its name out there.

Chequing account: It doesn't get any cheaper than the free everyday banking offered by President's Choice Financial and Amicus Financial. Both charge nothing for cheques, bank machine withdrawals, debit payments and other basic transactions.

Note that these two banks have no formal branches -- you gain access to your accounts over the Internet, by telephone or through bank machines operated by Canadian Imperial Bank of Commerce. Both banks are operated by CIBC's Amicus on-line banking division.

To see how much day-to-day banking would cost at other banks, try the on-line financial services calculator on Industry Canada's Consumer Connection Web site. I created a profile of a chequing account holder who did 37 total transactions each month and found the costs ranged from $5.50 to $16.50.

Note that several banks waive their monthly account fees if you keep a minimum balance of $1,000 or more, but so what? Life is complicated enough without having to run around worrying about whether your bank balance is high enough.

A final note about PC Financial and Amicus: both are members of the Canada Deposit Insurance Corp., which means your deposits are protected for amounts up to $60,000.
On the Web:
http://www.preschoicefinancial.com
http://www.amicusfinancial.ca
consumerconnection.ic.gc.ca

Mortgages: The lowest mortgage rate may just be the one you negotiate with your bank if you're a good credit risk with lots of other services and products from the same institution. If you want a cheap mortgage without the bargaining, try having a mortgage broker canvas dozens of lenders, including big banks and smaller lenders you've never heard of.

For instance, a broker might place your mortgage with First Marathon Mortgages, which is owned by National Bank of Canada. According to financial data provider Cannex Financial Exchanges, First Marathon had the cheapest one-year rate during the latter half of this week at 3.6 per cent.

If you'd like to approach a lender directly, Cannex showed the on-line bank ING Direct was next cheapest with a one-year rate of 3.8 per cent. Next came the 3.9-per-cent one-year rate offered by a pair of supermarket mortgage brands -- Master Choice and Safeway Club.

Master Choice is available in Ontario only through Bank of Montreal branches located in A&P, Dominion and Ultra Food and Drug stores. Safeway Club is sold through Bank of Montreal branches in Safeway stores in Western Canada, and in Thunder Bay, Ont. ING mortgages are available in all provinces but Quebec.

If you're doubtful about checking out one of these alternative mortgage lenders, consider the potential savings over the 4.6-per-cent one-year rate offered by the big banks.

Say you have a new $100,000 mortgage and your bank offers you 4.1 per cent on a one-year mortgage -- the posted rate of 4.6 per cent minus a discount of half a percentage point. If you're on an accelerated plan where you pay every two weeks, your payments would be $265.

A comparable mortgage at 3.6 per cent would cost you $252 a payment, for a savings of $338 for the year.

A warning to people transferring their mortgage to a lower-cost player: Transfer fees may apply, but they're also negotiable in some cases.
On the Web:
http://www.ingdirect.ca
http://www.freshobsessed.com/mcmortgage
http://www.cannex.com/canada/english

Credit cards: If you don't carry a balance from month to month, there are plenty of no-fee cards to choose from. For those who do carry a balance, the cheapest card as measured by interest rate and annual fee would be the low-rate version of Laurentian Bank's Black Visa, which has a 10.5-per-cent interest rate and an annual fee of $24.

Right behind is Royal Bank's low-rate Visa, which has the same rate and a $25 fee. Bank of Nova Scotia and Canadian Imperial Bank of Commerce have low-rate cards that have the same interest rate, but a slightly higher annual fee of $29. (This information comes from the Quicken.ca credit card cost calculator.)

Lots of people pick their credit card on the basis of the kind of reward points it offers. That's fine, but reward cards are expensive if you carry a balance.

Consider CIBC's popular Aerogold card -- it has an annual fee of $120 and an interest rate of 19.5 per cent. If your monthly balance was $2,000, then your total cost per year would be $510, compared with $234 for the Laurentian low-rate card.
On the Web:
http://www.laurentianbank.com
http://www.royalbank.ca
http://www.quicken.ca

On-line stock trades: On-line brokers differ widely in the type and quality of services offered, but if you're only interested in buying a few stocks then it all comes down to price.

The cheapest on-line broker out there is eNorthern, which has a minimum commission of $24. This narrowly beats the $24.95 charge at National Bank Discount Brokerage and the $25 charge at CIBC Investors Edge, BMO InvestorLine and Charles Schwab Canada. Note that this price applies to market orders only at National, Schwab and InvestorLine -- limit orders cost a few dollars more. (You pay the going market rate with a market order, while a limit order allows you to specify a minimum price you'll pay or receive).

For large orders, eNorthern's commission savings are even more significant. If you bought 3,000 shares of a $10 stock, you'd pay $60 at eNorthern and as much as $90 or so at most other brokers.

Note that eNorthern is a member of the Canadian Investment Protection Fund (CIPF), which protects customer assets against a broker's insolvency.
On the Web:
http://www.enorthern.com

On-Line brokerage self-directed RRSPs: If you've got an account of $25,000 or more, you'll find that annual administration fees for self-directed registered retirement savings plans are waived no matter which broker you choose. But what if you're just starting out, or have only a small account?

Most on-line brokers victimize people in these situations with fees that range from $25 at BMO InvestorLine and Royal Bank Action Direct to an outrageous $100 at TD Waterhouse. Three brokers charge nothing: eNorthern, Merrill Lynch HSBC and Charles Schwab Canada. Note that Schwab requires $20,000 to open an account.

Expect to pay an RRSP administration fee of $100-plus at a full-service brokerage.
On the Web:
http://www.enorthern.com
http://www.mlhsbc.ca
http://www.schwabcanada.com

Next Tuesday: The Cheapskate's Guide to Personal Finance continues with a look at mutual funds and exchange-traded funds.
rcarrick@globeandmail.ca




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