I received a letter in the mail this week from my bank, informing me that the NSF fee if I bounce a cheque is going from $42 to $45.
A colleague of mine got a letter this week, from the same bank, advising that credit card interest rates for delinquent customers are going up. Under the old policy, if you were 30 days late with your payment, they bumped your interest rate up by 5 per cent and left it there until you made your minimum payment, on time, for two months in a row.
Under the new policy, if you are 30 days late with your minimum payment, your interest rate goes to almost 25 per cent on purchases and almost 28 per cent on cash advances, and it will stay there until you have made your minimum payments, on time, for a full year.
The bank explains this with an example that says on a $2,500 balance it will only cost you an extra $8.47 per month. No big deal, right?
But what if you are carrying $25,000 on your credit cards? That's an extra $1,000 per year in interest, and that's money that won't go towards paying down your debt.
What should we think of these new rates and fees?
If you don't expect to ever bounce a cheque, and if you don't carry a balance on your credit card, you don't care.
But if there was that time when your employer was late depositing your paycheque and you bounced three cheques, you care.
If you got laid off and it took six weeks for your Employment Insurance to kick in, and you missed your credit card payment, you care.
Is this the bank's fault? Is this just a money grab?
Duh. Of course. Banks, like all businesses, exist to make a profit.
Personally, I have no problem with a bank making a profit. For over a hundred years the big Canadian banks have accepted deposits from savers, paid the savers interest, and then loaned that money out to borrowers as mortgages, bank loans, and recently as credit cards and lines of credit. That's fine. It's a win-win.
Except now, thanks to the government of Canada (and most other governments around the world) pushing interest rates to very low levels, there appears to be no point in saving money. Banks pay zero interest on a typical savings account, and GICs aren't much better. What's the point of saving?
And if you are the bank, and variable mortgage rates are now well below 3 per cent interest for credit worthy customers, how do you make money? In the "old days" when mortgage rates were 10 per cent and savings accounts paid 3 per cent, the bank could make a 7 point spread. Today, if mortgage money is sourced from GICs paying 1 per cent, the spread on a 3 per cent mortgage is less than 2 per cent. Those are tight margins. So what's the solution, if you are a bank?
Big service charges. Nickel and dime your customers, to replace what you can't earn the old fashioned way.
This is the new reality, so if you bank at a bank, be very careful not to bounce a cheque, and don't carry a balance on your credit card, because if you do, you are the bank's "cash cow" and you are an important source of revenue generation left to the banks.
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