Should you switch to a no-fee or low-fee bank account?

a woman holding a debit card and a phone

Pay for goods by credit card through a smartphone in a coffee shop.

When I opened my main chequing account—about six jobs and two kids ago—I chose the bank because it had a branch in the building where I worked. Back then I visited the bank (and used its ATMs) more often and paid for things like coffee and lunch from the cash in my wallet.

But now, I’m far more likely to tap and go with my debit card and hardly ever visit a branch. Luckily, I’m on an unlimited transaction account, so my fees haven’t shot up. But if I mess up and get overdrawn, the penalties are stiff. Sometimes I wonder if I have the best chequing account for me, or if there’s now a more competitive offering that would better suit my needs. And I’m not alone.

Most of us take a “set it and forget it” approach to our bank accounts, choosing them for reasons that suit us at the time and rarely giving them another thought. But putting this part of our financial picture on autopilot may mean spending far more on fees than is necessary, possibly adding up to thousands of dollars over the course of a lifetime.

“People put a lot of research into some aspects of their financial lives and not into others,” says Jennifer McDonald, chief operating officer of Mylo Financial Technologies, a Canadian investment app. “We’ll see them researching the best deals on a flight for a trip they’re going to take once a year, but they don’t look into how their banking relationships are set up.”

So, it pays to take a second look at the monthly or per-transaction bank fees you’re paying, says McDonald. Your bank can tell you how many transactions you make in a typical month, as well as the account packages currently on offer—which may well have changed since you were last shopping for a new account. Alternatively, you can review your statements on your own, then look over the account offerings online. Either way, you can be sure you’ve got the accounts that are right for you, she says.

Here are some considerations to keep in mind when deciding if a low- or no-monthly fee account can work for you, or whether you’re better off paying more for unlimited transactions.

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Weigh minimum balance requirements against lost interest/investment income

While the big banks have more options and frills—like bricks and mortar locations with humans you can talk to about your financial needs—most charge sizable monthly fees on their chequing accounts to pay for those services. Some, however, will forgo these fees if you maintain a high enough minimum balance, since it leaves them with a nice stack of cash to lend out—and they charge borrowers a higher rate of interest than they pay you on your deposits.

For example, TD Canada Trust will waive the $15.95 monthly fee on its Unlimited Chequing Account with a minimum balance of $4,000, and will do the same for its pricier All Inclusive Chequing Account (which costs $29.95 monthly, but comes with extra perks such as an annual fee rebate on select TD credit cards) if you maintain a minimum balance of $5,000.

It can be a good tradeoff for those who need unlimited transactions on their account and want to pay less in fees. On the other hand, others may prefer to put those four-figure sums in a high-interest savings account or investment product that provides a return on their money—as opposed to the 0% interest TD pays on its chequing accounts.

Use cash or a credit card to minimize monthly account transactions

The big banks offer some low-fee account options, too, but with more limited transactions. RBC’s Day to Day Banking Account, for instance, is just $4 monthly and includes 12 debit transactions. That won’t work if you’re fond of tapping from your chequing account for your daily caffeine fix. But if you don’t mind operating in cash, or if you use a credit card for daily transactions, this kind of account could work for you.

Indeed, many people prefer to use their credit card each time they buy groceries, a transit pass or a flat white—particularly when collecting points for travel or other rewards. There’s an important caveat, though, says McDonald. This approach only works if you don’t carry a balance on your credit card from month-to-month, incurring pricey interest charges, and instead can comfortably pay your bill in full each time it comes due.

Consider an online-only bank

If you’re comfortable with branchless banking, the cheapest accounts on offer are those from online-only institutions such as Tangerine (the online branch of Scotiabank) and Simplii Financial (owned by CIBC).

Both offer chequing accounts with no monthly fees and unlimited transactions, including free Interac e-Transfers.

Most of the branchless banks now have partnerships with one of the bigger banks with no-fee access to their ATMs, which was previously a drawback of going with an online-only institution.

Beware of fees on multiple accounts

It can be helpful to save some money in an account that’s less accessible to you than the chequing and savings accounts linked to the main bank card in your wallet.

“We find that people do tend to organize money using mental envelopes,” says McDonald. “It can be valuable to have a little bit of money that’s out of sight and out of mind and that’s growing over time.”

Of course, if each of these accounts come with fees attached, the total costs will add up quickly. “Generally there’s no point to having many banking relationships for your main transactional banking accounts,” she cautions.

Plenty of us also have banking relationships we need to clean up and close out because annual fees are chipping away at a low remaining balance, says McDonald. You may even incur a dormancy fees of around $20 per year for an account that’s been unused for 12 months or more.

Leave a cushion in your account to avoid NSF fees

Even low- and no-fee accounts will usually charge non-sufficient funds (NSF) fees if your balance drops into the negative. It’s a steep hit for many Canadians, who run too low in their bank accounts (or overdraft) between pay cheques and face unexpected NSF charges, says McDonald. “These are typically in that range of $25 to $45,” she says.

To avoid these unnecessary expenses, McDonald recommends building up a buffer of savings to keep your account above a certain threshold. “Don’t risk getting stuck with those surprises that come from time to time if you’re living a little too close to the line,” she says.

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