Do you still have those dreams where you’re in school and you’ve missed or made a huge mistake on an important test.

Sorry to make you anxious, but you’re actually still being tested, possibly without you realizing it. Every time you borrow money, use your credit card or pay a bill, you’re being evaluated by Canada’s financial system.

Your grade is your credit score.

And every time you apply for a loan or a credit card, the financial institution involved can look up that credit score and use the information to decide whether to loan you money or not, and at what interest rate.

Some experts are saying the credit score was not originally intended to play such a huge role in loans but was intended to just provide one piece of information about a borrower.

Behind the numbers

So, what goes into determining your credit score?

• Your bill payment history, noting when you are late for things like utility and cell phone bills, and credit card bills.
• Any bills that have gone into collection.
• The amount of credit you’re using — your debt load.
• How much credit you have available.
• How much credit activity you’re been using lately.
• How long you’ve had your accounts.

The players

Canada’s two major credit-reporting agencies are Equifax Canada and TransUnion Canada. These organizations both collect credit information and distribute it to banks and lenders, but also to consumers.

Using your personal information, you can quickly access your credit score online from these companies, paying a minimal fee (about $25). Or, you can have your report mailed to you for free.

What the numbers mean

The Canadian agencies use a numerical system to give your credit score. Basically, they rate you with a number between 300 and 900 (or thereabouts), the higher number indicating a lower lending risk.

So, getting a score of 700 puts you in an average range, meaning you’re likely to get loans at decent rates.

Why check?

Most people look up their credit score when they’re about to apply for an important loan like a mortgage and want to know how it’ll go. Seeing your score can help you better understand what potential lenders are telling you or are about to tell you. It also allows you to see your information and possibly correct any problems or work towards improving your credit score.

Also, credit experts suggest you check your score to ensure there are no errors and that there’s been no fraud on your account. Is this paranoid? Maybe. But if you’ve lost your wallet recently or you have suspicions, checking your score will for certain reveal to you if anyone is using your personal information to borrow money.

Will you check?

Some of us dread hearing the truth about ourselves, and the truth about our credit past is no exception. If you know all is well, perhaps checking won’t be a big deal. Maybe you’ve had rough times and don’t want to know that others remember.

Still, it’s good to know this information is available to you when you need it. Check when you’re really ready to see how you did on this one, important test.

Increasingly Canadians looking to buy a house are seeking more information from the professional helping to secure their mortgage. They look to their mortgage expert for good financial advice, guidance and some level of consultation on what most likely is the biggest investment of their lives.

The Role of Mortgage Professionals

A survey by Maritz Research Canada conducted for the Canadian Association of Accredited Mortgage Professionals (CAAMP), shows mortgage brokers in particular are expected to provide clients with options and support through the complicated mortgage process. There’s also an expectation clients will be offered competitive mortgage products, recommendations on product details and lenders, and in general a high level of customer service.

Mortgage experts are now on the front line when giving advice to new homeowners on how much they should borrow and at what rate. They’re committed to getting the best rate and product possible for the mortgage term a homeowner is seeking.

Here’s the Good News

Canadian home prices have held up surprisingly well despite the economic issues that have plagued the world in the last 3 years. The Canadian housing markets remains stronger compared to the U.S and appears to be a far better investment than the stock market. On top of this, Canadians have roughly 68 per cent equity in their home, compared with 43 per cent  in the U.S. an indication our housing market remains much stronger.

In the same survey Canadians admit they could handle a $200 a month increase on their mortgage payment if interest rates were to rise. If that’s the case then we should be putting more money towards our mortgage right now.  It will lower our principal and our loan will be much smaller when rates rise. Don’t borrow money in anticipation of making higher payments in the future. Ask your mortgage professional how bigger payments will reduce your amortization. You will be pleasantly surprised.

This is My Concern

Interest rates still remain historically low, making it easier and more comfortable for Canadians to borrow more money then they should. Canada’s rules are not as lax as the U.S. when it comes to lending, especially after new stricter guidelines were brought in by Finance Minister Jim Flaherty in 2010.  But that doesn’t mean homeowners aren’t full of false confidence they can borrow more than they can manage.

Before you meet with your mortgage broker or the mortgage specialist at the bank understand based on your financial situation how much you want to borrow. Remember when you borrow money you’re buying the right to pay that money back in a per-determined amount of time.  Don’t get pushed out of your comfort zone when it comes to your mortgage.

We’re quickly moving into the busiest time for mortgages in Canada. Springtime is when real estate sales ramp up as homeowners try to buy a home they can move into during the easy summer months.

It is easy to convince yourself to borrow more to get into a “dream home.” This is especially true for buyers who previously lost out on a home because they were out bid by another buyer. Remember if that dream home is out of your budget it can quickly becoming a nightmare if house prices fall even slightly and when interest rates start to rise.

Do Your Own Research First

My advice is to decide how much you can afford to borrow before you meet with your mortgage professional. Remember nobody cares about your money as much as you do.  Getting better service and good advice is imperative, but do your own research to make sure the mortgage amount is best for you.

Mortgage professionals are there to guide you through this complicated process and give you the best advice they can, but ultimately the decision about how much you want to borrow (after you know the amount you can qualify for) is up to you.

The popularity of no fee accounts is growing.  ING launched its no fee chequing account early this year.  Ally did a big advertising push with TV ads featuring savings accounts that offer some of the best interest rates and PC Financial continues to push ahead featuring no-fee banking to Canadians.

Online Banking Raises the Bar

The world has moved online. The days of standing in line to complete your banking seems like an activity belonging in the pioneer days.  Bank customers want quick access to their cash, the ability to easily pay bills, and they won’t wait for anyone to know what their balance is, oh and they want it all for free!

A recent survey revealed by ING shows 35% of smart phone users have done some sort of banking on their mobile devices in the last year. What’s amazing is the same survey shows almost 50% of smartphone users expect to bank from their phone in the next 2 years. Canadian banks have responded. Every major Canadian bank has a free banking app available to their customers. No matter who you bank with you can get your finances in check  from the comfort of your bed if you have a smartphone.

Fees?  No Thank You!

Online accounts have proven to be a cheap way for banks to put forward their services.  This year ING Direct and Ally have stepped up their game in the no-free banking space.

ING fully launched its THRiVE Chequing account in January 2011. It had done a soft launch of the account in August 2010 to 10,000 customers to see how popular the product was. But the full launch was at the beginning of this year.

THRiVE is an online account with no monthly fees. You can deposit, withdraw or transfer your money fee-free and enjoy unlimited bill payments and transactions. Your first chequebook is free and you can write, deposit and view your cheques online at no extra cost. All of this, plus your monthly online account statements will be provided at no charge.

It’s the first real challenge to the no-fee banking giant PC Financial.

PC Financial continues to offer free daily banking. You can get access online and by phone. Customers can access their money at no cost at 3,800 President’s Choice Financial and CIBC bank machines. The account allows free bill payments and Interact payments and the big difference is PC offers free cheques, unlike ING.  But if the world is moving online, cheques are also becoming a thing of the past.

Savings Accounts are a Safe Option

In general rates on savings accounts have been very low, but with continued volatility in the market, it might still be the best bet for a risk adverse consumer.

With the unpredictability of the markets, Canadians looking for a risk free way to save money may be looking towards a high interest savings account to park their money while this latest economic storm passes.

Ally has it’s own no fee savings account called the high interest savings account. They boast on having a higher rate than traditional savings at 2%. There is no minimum balance required and your interest compounds daily. This is not a chequing account, but still a great place to put away your money worry free knowing you can get quick access.

A high interest savings account can be used for a Tax Free Savings Account (TFSA).  The TFSA was first introduced in January 2009, and according to a recent survey by ING Direct 13% of Canadians still don’t know what a TFSA is and another 37% are unclear about how it works.

Here’s to hoping that 2012 brings a new found interest from Canadians in understanding the fantastic tax advantages of a TFSA.

The Popularity of No Fee Banking is Undeniable

ING Direct is proud to say 70,000 people have signed up for their new THRiVE account. PC Financial says their customers continue to appreciate their account and how it can potentially offer $200 in saved fees each year.

Another survey by ING showed 38% of Canadians say their chequing account fees disgust them, and 66% believe that the current banking fees are unfair. 25% of Canadians said they don’t know how much they pay in monthly bank fees, and 75% have said they would switch to an online, no-fee chequing account if one were available to them.

2011  has provided many options to those individuals searching for a no fee bank account.  Happy New Year!

RateSupermarket.ca Lists Ways Canadians Can Save On Credit Card Debt

TORONTO, December 13, 2011… With the holiday season in full swing, and more and more consumers pulling out plastic to fund their celebrations, RateSupermarket.ca has created their five top credit card tips to help Canadians save money before, during and after the holidays.

1) Get old debts under control

Are you still struggling to pay off LAST year’s holiday gifts, let alone this year’s?  If you have a large outstanding balance on your credit card, make a point of getting it under control.  Look into transferring the balance to a card that offers a low introductory rate on balance transfers, i.e. a 0% balance transfer credit card.  This means that more of your payments will go towards paying off the balance and not just the interest.

2) NEVER just pay the minimum

If you have $1,000 owing on a credit card and only pay the minimum amount each month, it will take you almost 10 years to pay it off and cost you an extra $1,056.70 in interest – yikes!  Make sure you’re paying more than the minimum interest owing each month.  And, if you regularly forget to pay the balance on your credit cards, set up an automatic payment from your bank account to your credit card, so you don’t get stuck with extra interest charges.

3) Look at your bill

You may be happy shopping for your niece or father in-law, but you’re probably not interested in buying a gift for the guy behind you in line at the store, or a scam artist on their computer overseas.  Regularly view your credit card statement online to make sure you actually bought what you’re being charged for.  Christmas is a busy season and fraudsters are on the move.  Also, pay attention to any admin or extra fees such as credit card insurance.  Don’t get caught paying for something that you don’t use or want.

4) Don’t use your credit card to take out cash

Interest charged on cash advances is typically in the area of 19% – 22%.  If you need extra cash, look into a line of credit or a small loan through your bank instead.  If you have a good credit history, interest rates on this type of a loan can be as low as Prime + 1% (Prime currently sits at 3% for most banks).

5) Ask for a lower interest rate

You don’t get what you don’t ask for.  If you’ve built up a good credit history with your current provider, there is no harm in calling the company to ask for a lower interest rate, especially if you intend to put more on your card this month than usual.  You may need to threaten to cancel the card and take your business to another low interest credit card provider before they take action, but it may be worth it to lower your interest rate.

“The holiday season is an important time to look at your credit card debt and spending habits”, says Kelvin Mangaroo, President of RateSupermarket.ca.  “But really it’s about putting in place good credit card practices that will help you save money year round.”

About RateSupermarket.ca (http://www.ratesupermarket.ca)

RateSupermarket.ca is the largest impartial rate comparison service for personal finance products in Canada.  Founded in May of 2008, their easy to use comparison engines provide much needed transparency into the Canadian financial market and allow visitors to quickly find the best rates.  Over 1.5M Canadians have turned to RateSupermarket.ca to save money on their mortgage, insurance, credit cards and GICs.

If you’ve been reading this blog for a while, you know that one piece of advice we constantly try to hammer home is that you should pay off your credit card balance in full every month to avoid the high interest rates you’d otherwise be charged.

But the unfortunate reality is that sometimes we just don’t have the funds available to cover large unexpected costs – like a car that won’t move or a toilet that’s flowing in the wrong direction, both of which recently happened to me in the same week.

The next piece of advice is to set up a line of credit so you have some funds available to pay your bills at a much lower interest rate than the rates credit cards charge.
But if you don’t have a home or other large asset to back a secure line of credit, and your credit rating has too many red flags (from all those bills you’ve been late in paying), you might not qualify for a line of credit.

If that’s the situation you’re in, then forget about cash back or air miles programs. You should focus on getting yourself a credit card that will charge you the lowest amount of interest if and when you do need to carry a balance. Here are some of the best low rate credit cards in the market.

American Express Air Miles Credit Card

The American Express Air Miles credit card is a no-fee card that offers the lowest rate out there, 2.99 percent, though that’s only for the first 12 months. After that it jumps to 19.99 percent. Still, it’s a great option for someone who anticipates cash flow issues for a year – say when you’re planning a major renovation, or going on maternity leave.

And if you’re already collecting Air Miles, it’s a great way to grow your account, with a bonus of 150 miles when you make your first purchase, and earn additional miles for every $15 to $20 spent using the card. It also includes travel accident insurance and extended warranty coverage on purchases.

Capital One SmartLine Platinum MasterCard

The Capital One SmartLine Platinum MasterCard is another no-fee card with a very favourable rate of only 5.99 percent. For the first three years, it also comes with a “balance transfer” rate of 5.99 percent, effectively making it a fixed-rate line of credit. The card includes travel and rental car insurance, and extended warranties on purchases, but you do need to have an excellent credit rating and minimum household income of $40,000 to qualify.

Scotiabank Momentum No-Fee Visa

The Scotiabank Momentum No-Fee Visa is a no-fee card with an interest rate of 7.99 percent – albeit for the first six months only, after which it jumps to 19.99 percent. The big bonus with this one is that you earn up to 1 percent cash back on your purchases, helping you build a nest egg to pay down debt. Like the Amex Air Miles card, this is a good short-term option for temporary monetary shortages. It also includes discount car rentals at Avis.

MBNA Gold MasterCard Fixed 9.99 APR

When you’re self-employed (like a freelance writer and blogger), or work in a seasonal industry like farming or fisheries, your income can come in fits and starts. But your daily expenses tend to stay the same. So if you anticipate periods where you just won’t have money available to pay off your credit card bills for the long-term, it’s worth looking at the MBNA Gold MasterCard with a fixed 9.99 percent interest rate – about half of what most cards charge. It’s higher than the Captial One SmartCard, but you only need to show a household income of $35,000 and carry a good credit rating to qualify. There’s no annual fee and it includes purchase protection and extended warranty coverage.

MBNA Platinum Plus MasterCard

And here’s a bonus card to consider, the MBNA Platium Plus MasterCard. While the interest rate on new purchases is up there at 17.99 percent, the really enticing part is that there is no interest (as in zero percent) on balance transfer for the first 10 months. So if you have fallen behind on your payments on other cards, sign up for this free card and you’ll earn yourself a 10-month grace period to start paying off the debt. At the end of that, if you’re still in the hole take another look at one of the low interest credit cards above.

In a perfect world, we’d all owe no money, and have gobs of savings sitting around.

But we do not live in such a world. According to surveys, the average Canadian owes $1.47 for every $1 of their disposable income. Yikes!

The main culprits? Buying homes beyond our budgets (and fancying them up with pricey renovations) and spending too much on a daily basis. That overspending tends to happen on our credit cards. The high interest rates on these cards often turns small debt into a never-ending headache.

The Credit Card Facts

There were an estimated 37 million debit cards and 72 million credit cards in circulation in Canada in 2009. We spend more than $260 billion annually on our credit cards in Canada. Credit card debt in this country is hovering around $78 billion at any given time.

Yesterday you read Melanie’s blog about avoiding credit card debt, but what should you do if you’re already in over our head? Here are some suggestions:

Consolidate

Talk to your bank about moving your credit card debt onto a line of credit, or even a small loan. Make sure the interest rate is low (ask, and ask again if you’re getting the lowest rate, and don’t be afraid to shop around and tell your bank you’re doing so!) and make sure that the limit on your line of credit is not very high. Why? If you have $10,000 you can borrow, you just might borrow it! Transfer your debt onto the line of credit and set up monthly or even bi-monthly automatic payments to get rid of the debt in as short a time as possible.

Go Down to One Card

You do need a credit card to live, but you don’t need five! Chop up your store cards and get yourself down to just one card so you can track all your purchases and not get trapped in a debt-transfer vicious cycle.

Get a Better Card

If your credit card use is a problem, get yourself onto a single card that helps curb those problems. Find a low-limit card with a low interest rate and no fees. Yes, some cards do offer you great rebates on travel and gas and the like, but those aren’t for you if spending is an issue. If you do get a new card, read the fine print carefully and make sure your interest rate will stay the same over time. Talk to the company and ask about your credit limit to make sure it does not get increased unless you ask.

Keep a list

For some, simply cutting up the credit card is a good idea. But for most of us, we need that little baby to make certain kinds of purchases and it’s just not practical to get rid of it entirely. Instead, put some controls on your use. Perhaps keep a list (on paper or electronically) of every single thing you buy on that card. Keep the list in visible sight at all times (maybe near your desk at work or in the kitchen) so the bill at the end of the month is never a surprise.

Find your weaknesses

Keeping track of what you buy on credit helps you see where your spending goes awry. Perhaps you buy nice dinners out and don’t notice how chunky those bills are. Maybe you are an online shopper who gets excited every time another email hits your inbox reminding you about 30% off and no shipping. Tackle those spending habits by limiting how much you go out and unsubscribing from the deal emails.

But perhaps the best way to deal with credit card debt is to change how we view these buying machines. They’re not a gateway to get everything we want to make life easier. They’re merely a tool and one that can help us manage our finances, or mismanage them.

As Christmas nears, most of us are shopping for the perfect gift for friends and family. The perfect gift, however, sometimes costs more than we can afford.

At Christmas time, it’s perfectly acceptable to get extravagant and spend more than we make. Many of us justify the debt we rack up on our credit cards by saying we’ll pay it off later. Besides, we really only have to pay the minimum payment, right? And that’s a payment most of us can handle. But what most people don’t think about is just how much that gift is really costing them in the long run.

What is the Minimum Payment?

Each month, when you receive your statement in the mail, there are various numbers to look for. If you paid your previous month’s bill in full and there is no interest carried over, then your minimum payment will be $10. If there is interest carried over, your minimum payment will be the total calculated interest (your interest rate, multiplied by 365, divided by the number of days in the billed month) plus the $10. 

The Flat Screen TV Example

Take this situation, for example. I decide to buy my partner a flat screen TV for Christmas. I can justify my purchase because the TV is currently deeply discounted. If I buy it later, it will cost me an additional $150. I could put it on a credit card offered by the retail store, but their interest rate is 29.99% – a little too steep for me. So I put it on my regular credit card instead, thinking that I’ll pay it off over the course of a year. After all, my credit card’s interest rate is 19.99% – 10% lower than the retail store’s rate.

The TV, with taxes included, costs me $500. I pay for it and go home, impressed with my awesome find. At the end of the month, my statement arrives in the mail. Since there was no debt on my card beforehand, I am only expected to pay $10 by the given date, which I do.

The following month, the minimum payment is a little higher at $18.05. That’s like 5 fancy coffees at Starbucks. No big deal. I got this. I pay the $18.05, sit back and enjoy my TV. At $17.89, my bill in the following month is even less. Nice; I like this. I make the payment and wait for the bill to arrive in the following month.

Are you seeing what I’m seeing? If each month I only pay $10 plus the interest, I’m really not paying that debt off very quickly. In fact, at this rate it will take me 9 years to pay off the TV. On top of that, by the time it’s all said and done, I’ll have paid an additional $583 in interest, making the total cost of the TV $1,083. Not much of a savings, when you think about it.

Tips to Avoid Credit Card Debt

1. Put the cards away. Pay with cash so you can see just how much you’re spending. This also means that you’re only buying what you can really afford.
2. Curb your spending. Make a list. If it’s not on the list, don’t buy it. This should help you control impulse buying.
3. Think twice before you swipe. Do you really need that item, or do you just want it? Here’s what I do. If I see something I really want, I evaluate why I want it, then I walk away. If I’m still thinking about that item an hour later, then I can go back and look at it again. If I’ve forgotten about it, it likely wasn’t important. Nine times out of ten I completely forget about the item. 
4. Come up with a plan. Avoiding debt is so much easier with a plan. Make sure that everything you put on your card you can pay off in full by the end of the month.  If you wont be able to pay it off, and it’s a purchase you really need to make, consider using a line of credit, which will come with a much lower interest rate.
   

Observing Financial Literacy Week is a great idea. But there are 51 other weeks in a year where you should also be concentrating on how to reduce costs, save money, and improve your investments for the future. Here are five areas to focus on.

1. Minimize your cost of borrowing

It’s almost criminal the interest rates some credit card issuers charge for outstanding balances. With the federal Bank of Canada holding its benchmark interest rate steady at 1 percent, it’s a wonder how they can justify charging 30 times that amount – or more.

But what’s really astounding is how many people pay that amount by carrying debt on their high-interest credit cards. You should always pay your credit card bills in full to avoid these charges. If money’s a little tight occasionally, use a low-interest line of credit to pay the bill(s) off, starting with the most expensive debt first.

If this becomes a recurring problem, consider setting up a meeting with a credit counselor. Then grab a pair of scissors and chop up those overcharging charge cards.

2. Reduce or eliminate punitive fees and charges

There are numerous reasons why you should always pay your bills on time, including preserving your credit rating and to avoid having debt collectors hounding you. But most importantly on a day-to-day basis is to avoid the penalties – often on top of interest – that utilities and other companies you receive regular bills from will charge. (As with credit cards, you should establish a line of credit to have funds available for those times when your money’s in short supply.)

And rather than squandering any of the minimal interest your bank account earns every month – and likely more – on various fees for withdrawal, ATM use, Interac usage, writing a cheque, and so forth, shop around for a no-fee account or one that offers a reasonable flat-rate that would cover your typical banking activities.

3. Invest for the future

Every year, as winter winds down towards spring, the ads for Registered Retirement Savings Plans (RRSPs) bloom. And with good reason. The financial institutions obviously want your business. But Canadians are keen to reap the tax-savings rewards of planning for their future: every dollar invested in an RSP is deducted from your annual income when calculating the income tax you owe (provided you don’t exceed your personal limit.)

But while RSPs are the most popular and well-known means of saving for the future, there are other options. A newer federal program is the Tax-Free Savings Account (TFSA). These operate similar to an RSP but, instead of upfront tax savings, any income they earn is tax-free.

Of course, both can be effected by volatile stock markets. For a truly balanced portfolio, you should also consider more stable investments like bonds and Guaranteed Investment Certificates (GICs).

Finally, if you have children, open a Registered Education Savings Plan (RESP) account to save for their post-secondary education and, regardless of income level, you could be eligible for up to $500 a year in grants. (Lower income families are also eligible for additional Canada Learning Bond grants.)

4. Track your expenses to develop – and follow – a workable budget

It’s impossible to save for the future without knowing how much of your income you’re actually spending. If you haven’t already done so, create a personal expense tracking plan. The more detailed the better. After just a few weeks – better yet, months – you’ll quickly see areas where you could realistically cut back on expenditures, and put that money into savings. While it can seem cumbersome initially, once you get in the habit – and reap the benefits of seeing your savings grow – it’ll become second nature.

5. Pay attention to the news

While you don’t need to comprehend all the details of the scrolling business ticker at the bottom of your favourite 24-hour news channel’s screen, or analyze the daily ups and downs of gold and the dollar, you should be conscious of how big-picture financial events can impact your finances.

A global decline in construction will ultimately lead to a decline in the value of those mineral and resource stocks you’ve invested heavily in. Closer to home, a major new development or infrastructure program can increase nearby property values. Good if you’re looking too sell; bad if it means your property taxes will go up.

And here’s a tip for anyone with a variable rate mortgage. That influential 1 percent Bank of Canada rate will inevitably go up, and the various institutions’ lending rates – including for variable mortgages – with it. If you’re a risk-averse person when it comes to investing, you should monitor those regular Bank of Canada announcements and have a plan for how high you’re willing to let it go before you lock in to a fixed-rate mortgage.

It was no surprise on Wednesday morning when the Bank of Canada announced that they would maintain their Key Overnight Lending Rate at 1.0 percent.  The announcement means that major banks will keep their Prime Rate consistent at 3.0 percent, which means variable mortgage rates will also stay where they are

The Bank of Canada highlighted a number of reasons for keeping interest rates low, including:

• The European sovereign debt crisis is getting worse
• Global growth has slowed
• Financial market volatility has increased sharply
• The US is not recovering fast enough from the recession

High levels of household debt and unemployment will force US consumers to cut back on spending, further halting growth in the world’s largest economy.

On the home front, the BoC painted a bleak picture: Canadian economic growth stalled in the second quarter; lower wealth and incomes will likely moderate the pace of investment and consumption growth; and, the Canadian dollar continues to be a burden on Net Exports.

Plus, we should expect the economic situation to worsen in the event that global financial conditions continue to deteriorate.

Therefore, there is still a need for monetary policy stimulus (aka super low interest rates) to make it easier to borrow and spend money so our economy can continue to grow.

The next BoC meeting will take place on Oct 25^th, followed by the release of the updated Montary Policy Report on Oct 26^th.

If you decide to close your personal bank account – either chequing or savings account – the bank teller will probably ask you why you want to close your account. There are a number of reasons why people choose to close a personal bank account, including the following:

1. For lower fees – Most often, the reason people choose to leave their financial institution is because it costs them too much to keep their money there. Sometimes banks increase monthly fees, add fees where there were none before or reduce what’s included in a monthly package. If added fees for the monthly package outweigh the service you’re receiving, you know it’s time to switch banks.
2. For higher interest rates – Banks might lower interest rates on savings accounts – sometimes without you even knowing. Switching financial institutions for a better interest rate could benefit you in the long run.
3. To stop an automatic debit – This one has happened to me. I had an automatic debit coming out of my account that I did not set up on my own. The business that was illegally debiting my account was difficult to trace. I had to close my account in order to stop the payments from coming out.
4. Divorce is on the horizon – If you know that you and your partner are going to part ways, it’s a good idea to close your joint account, especially if you have trust issues.
5. You’re moving – If you’re moving and there’s no bank nearby, you’ll want to switch banks, especially if your bank doesn’t allow certain transactions to be performed online or over the phone.

What to watch out for – A comparison of Canada’s top 5 banks 

Now you’d think that closing an account would be a simple as, well, closing an account. I thought so too, but it’s not. To find out how to close a personal bank account and what happens if you leave it inactive for too long, I contacted Canada’s top 5 banks: RBC, CIBC, TD Canada Trust, BMO and Scotiabank. Here’s what I found out:

Royal Bank of Canada

You may close your accounts:   

• Online
• Over the phone
• In-branch

Dormant after: 6 months of no activity

Inactive after: 2 years, after which time you’ll receive a written notice in the mail, sent to your last known address.

For the first 8 years, there is a $20 service fee to reactivate the account. The service fee rises to $40 in the 9^th year. After the 10^th year of inactivity, the remaining funds are transferred to the Bank of Canada.

Note about service fees: RBC charges service fees for 3 months of inactivity, at which time they stop, remove the fees and close the account. Unless the account is in a negative status, it is not sent to collections.

TD Canada Trust

You may close your accounts:

• In-branch
• Over the phone

Although you may open an account online, you cannot close it online.

Dormant after: 6 months

Inactive after: 2 years, after which time a written notice will be sent in the mail to your last known address. 

Note about service fees: TD Canada Trust charges $20 to reactivate a dormant account. They will continue to charge service fees, even if the account is inactive. If during this time, the account’s funds are depleted, the debt will be sent to collections, if left unpaid. If an account is closed within 90 days of opening, TD Canada Trust charges an additional $15 fee to close the account.

Scotiabank

You may close your accounts:

•  In-branch only

You may close an account with Scotiabank in-branch only, and only at your home branch. However inconvenient this may seem, the President’s office assured me that this was to ensure their client’s protection.

Dormant after: 6 months

Inactive after: 2 years, after which time a written notice will be sent in the mail to your last known address. You will receive this notice every two years until the 9^th year, when you will receive your final notice. After this, your funds will be sent to the Bank of Canada.

Note about service fees: Service fees will continue to be charged to your account until it reaches dormant status. If during this time, your account goes into a negative status, it will not be sent to collections. Once the bank realizes there’s a problem (ie. you’re not using your account), they put together a report and decide what to do from there. Usually, they simply close your account.

In order to reactivate your Scotiabank account you have to visit your branch in person. Reactivation takes 24-hours. Accounts can be reactivated from province to province, but only if you can prove you are the account holder.

Bank of Montreal

You may close your accounts:

• Online
• In-branch
• Over the phone (only if you have a $0-balance)

Dormant after: 2 years, after which time a written notice will be sent in the mail to your last known address. A notice will be sent to the account holder every two years. After nine years, the funds will be sent to the Bank of Canada. 

Note about service fees: If service fees are charged to the point where your account has a negative balance, BMO will take notice of the inactivity, close the account and take care of the service fees. Your negative balance will not be sent to collections.

BMO charges $20 to reactivate an account that has been dormant for up to five years. After that they charge $30. If the accountholder wants to reactivate the account after 9 years, they will be asked to pay a $40 fee.

CIBC

You may close your accounts: 

• In-branch
• Over the phone

Dormant after: 6 months, after which time no service fees will be charged

Inactive after: 1 year, after which time a written notice will be sent in the mail to your last known address. After 10 years, the remaining funds will be sent to the Bank of Canada.

Note about service fees: Although no service fees will be charged after 6 months of dormancy, if during this time the account goes into a negative status, monthly fees will still be charged. An overdraft fee at an interest rate of 21% will be charged for a negative balance. If the debt is not paid, it is then forwarded to collections.

Conclusion

Don’t just think that you can walk away from your bank account scot-free if you are no longer interested in using it.  In some cases you’ll still get charged the banking fees, which could put your account in overdraft and send you to the collection agency.  If you are thinking about breaking up with your bank or opting for a different account, make sure you go through the appropriate steps to close your current account first.

Melanie
Writer for RateSupermarket.ca