Maybe time to ditch that chequing account

Duff Conacher has been trying for 20 years to find out how much Canadian banks make on service charges.

They still don’t break out their profits on services but Conacher, spokesperson for Democracy Watch and adjunct professor at the University of Toronto, estimates revenues of about $1 billion.

“You should ask your bank what is the least expensive way to have all the bank services that you use,” says Conacher. For starters, maybe it’s time to ditch that chequing account once and for all. While some banks offer low fee accounts, a more controversial way to avoid all those charges might be to run all your banking through a home equity line of credit.

One of the advantages of a HELOC is it allows a consumer to write a cheque based on the credit approved or even make withdrawals via automated teller machines. There is usually no monthly charge because the bank assumes it’s making money on the interest you’re paying. Some banks will even print you cheques for free.

Canadians have been embracing HELOCs in record numbers with the Canadian Association of Accredited Mortgage Professionals estimating there are more than 2.2 million accounts across the country. An alternative are all-in-one accounts that essentially function like HELOCs because, like HELOCS, many are secured by your home and allow you do all your banking in one place.

In addition to saving on service charges, the accounts reduce your interest costs because they immediately apply credits to debt. So if you had your paycheque direct deposited into your bank account, it would immediately be added against your debt.

Jonathan Haziza, a product manager for mortgage solutions at National Bank of Canada, said there is nothing to prevent you from having one account with his financial institution by using its all-in-one account. “You can have some deposits, some withdrawals, some Interacs to make some purchases, write some cheques,” said Haziza. “The main advantage is there is no charge for electronic transactions.”

In the case of National Bank, its all-in-one-account will allow you to create sub-accounts so if you want a separate account for household expenses you pay a $2.50-permonth charge per extra account.

One downside of a HELOC is the charge against your property, which could cost you a few hundred dollars in fees to remove if you want to switch financial institutions. “Of course, you can’t have a HELOC if you’re not a homeowner. If you’re self-employed and you need to separate your personal transactions from your business transactions, that would be a great (reason for a chequing account),” said Haziza.

You are also generally not getting as good an interest rate as you would with a mortgage. The current rate at National Bank under a special promotion is prime plus 75 bonus points or 3.75 per cent — a variable rate or five-year fixed rate mortgage would be much cheaper.

“The whole concept behind the all-in-one account is it combines the client’s mortgages, savings, their income and other consumer debts into one account,” says Jason Daly, vice-president of product and marketing at Manulife Financial, whose Manulife One account has an interest rate of 3.5%. “The key is you have your dollars sitting in a chequing account earning zero per cent,” says Daly. “You have this pool of money that is constantly sitting there doing nothing for you.”