Most Canadians do banking exactly the way they are told by the bankers. This a mistake. Let’s do better. Here’s why.
“No Soup for You!”
Years ago, I was working at a bank branch one sunny summer afternoon. A man came in with a couple of wriggly, little kids in tow. He filled out one of those withdrawal slips that oldtimers may remember. The young father waited patiently in line while struggling to maintain order, gradually making his way up to our bank teller. Finally, he arrived and exchanged the usual pleasantries to the smiling teller. He presented his withdrawal slip. The teller began doing some banking magic on the computer terminal. There was a hesitation and then a frown. Then a polite, nervous smile. The manager was called. The manager did a little more magic on the computer terminal. Now the branch manager was frowning. Everyone was frowning, even the two small children who had been busy with other business were frowning.
Finally, the verdict was brought in. There was a problem with dad’s bank account. He would need to come back on Monday. The man blinked, “excuse me?’” I need money for the weekend. There is a good balance in my account.” “Sorry, sir. Please come back on Monday. It will all be straightened then.” That was that. There would be no appeal and he would need to find the money for the weekend somewhere other than his bank account.
The easiest way to bank like a pro is to never, ever, ever do all your banking with one financial institution. Never. They love you. Your parents introduced you. The bank is your friend. Until it isn’t.
Your favourite bank provides very convenient products and services. You have a branch down the street. You go online and to the store with your cards. You have simplified statements and bookkeeping. All your information is right there in the same place. Mortgage. Line of Credit. Credit Cards. Automobile and home insurance. RRSPs.
You can go your whole life without ever having a problem. On the other hand, you could have bought that home insurance tied to your car insurance. When you had a problem with the home insurance, they cancelled your car insurance too. Or you could have a credit card problem that ends up affecting your mortgage renewal.
Do yourself a huge favour. Bank, invest, borrow at several places.
“One-Stop Business Banking”
Likewise, it is surprisingly common for small businesses to do all their banking with one financial institution. May the entire life of your business be untroubled by any sort of banking troubles. But don’t count on it. There were the young business partners who made a sizeable cash deposit at the ATM. Somehow, the funds disappeared. There was nothing to be done. No evidence they had made the deposit. They lost their little, fledgling business. The funds turned up months later. If only they had gone into the bank and made that deposit in person. Or even better, if only they had deposited funds to two different institutions. If only one of their financial advisors had taught them to diversify their accounts.
The usual response to disastrous financial events is ‘we have never seen that happen before!’ If you want to bank like a pro, anticipate banking surprises.
“Are My Accounts Guaranteed?”
A banking pro knows that there are no guarantees when it comes to money. Your business and personal accounts are usually not guaranteed. While there is insurance for bank deposits provided by the Canadian Deposit Insurance Corporation (CDIC) up to $100,000 and $250,000 per account by the Ontario Deposit Corporation (DICO), this is coverage in the event of bank failure. Several different accounts such as RRSPs, TFSAs, joint accounts and other options can be covered separately by depositor insurance.
Your accounts are not automatically insured against loss from fraud or theft. In the last few years, some Canadians have been shocked to discover that their financial institutions balked at covering their losses to fraud. If you do not use strong passwords and are caught not doing your part in protecting cards, card numbers, or pin numbers, you could be on the hook for your losses. There are risks with all your accounts that you need to make the effort to understand. Recently, a lawyer friend discussed foreign exchange accounts that ran into trouble. Do you send relatively large sums of money overseas? There are better ways to do your banking.
It is better to have several accounts with smaller limits and balances than loaded accounts and credit cards with large limits. Whether or not your financial institution holds you accountable, you do not want to be responsible for a card with a limit that could pay for a new car.
You will need to have discussions with several financial advisors (financial planner, mortgage broker, accountant) to determine how best to secure your funds. This becomes a more interesting challenge as you become wealthier. The time to have this type of discussion is when the sun is shining, the birds are chirping and all is well. Do not wait until there are financial challenges on your horizon. Have a few really gloomy worst-case scenario discussions with your financial advisors.
Once you are so blessed as to have some assets, then the challenge is to hold on to them and make them grow. There is so much promotional material that makes this look easy. There are financial companies that work hard at making you feel more secure with them than you should. Learn how to safely handle your accounts.