I’ve been in Canada for a little more than five years and here are three comments I keep hearing from, not only newcomers but long time Canadians. I figure the next time someone asks me about it I’ll point them to this post.
There is no way around them. You have to pay a monthly fee, that how the Canadian banking system works, that’s why it so solid, that’s why it survived the 2008 crisis…
Nonsense, while there are indeed not many options to get a free checking account, they do exist!. I, for example, use Tangerine (if interested this link might get you a bonus if you enter my orange key 40264616S1 ), and there is also PC Financial. The catch here is that these two don’t have many physical branches to walk into, but that’s something most of us rarely do these days. If you still want the option of having physical branches to go to, you can also explore the option of joining a credit union (see the last paragraph of this article).
Saving accounts pay miserable rates
0.5% is as much as you can get nowadays…
This is surely true for the big banks, but this probably isn’t true for banks such as Tangerine and PC financials right? Unfortunately, these two fell short of expectation here. (as I write this, Tangerine and PC Financial both offer 0.8%. But there are options that offer up to 2% High Interest Saving Accounts, or HISA(such as EQ Bank) . The catch you ask? Well, these guys are not you traditional banks, but usually part of larger groups that usually include high-risk “alternative” lenders (You can think of them as those who finances those sub-prime mortgages and no-credit-check auto loans). This is to say, these are riskier entities (Home Capital Group is an example of things going wrong), where I wouldn’t put any emergency funds, but that money you are saving for your next vacation? I’d think of that as fair game, particularly if they are insured (up to a limit), either by CDIC or a provincial entity. According to CDIC, the last time a bank failed in Canada (~1996) they were able to pay within 3 weeks. Having said all of these, a better question would be if those extra $150 per year (before tax, assuming a $10,000 deposit) are worth the risk to you? Big banks are banking (no pun intended) on you answering “No”
“Since its creation by Parliament in 1967, CDIC has handled 43 bank failures, affecting more than 2 million depositors. No one has lost a single dollar of insured deposits.
from CDIC‘s website
Verdict: Plausible (HISAs are riskier than a regular savings account, so it’s not an apples-to-apples comparison)
Financial Advisor (or is it Adviser?)
You need to talk to (insert a name here), in order to start saving for your retirement.
You don’t need one, you are probably better off starting with a recurrent contribution to a low fee (MER) mutual fund (such as those offered by Tangerine or TD) or a Robo-advisor like Wealthsimple (here is a referral link if interested). The important part here is the “recurrent” part, otherwise, there is little hope to any significant savings.
While certainly a good adviser (it turns there is a difference between advisor/adviser, at least according to this CBC’s Marketplace report) could do good things for you, like proving you with a financial plan or subtly forcing you to make simple budget (which could be an eye-opener experience for many, me included), there a many advisor whose main work is to sell you products from the company they work for offers. To me, this is like asking for dietary advice from a cashier at a fast-food restaurant. But hey, these guys are regulated, they should have some sort of fiduciary duty (i.e. a legal obligation to act in the client’s best interest), right?. Well according to the CBC article, only 4,000 out of 121,000 registered as financial professionals in Canada have a fiduciary duty. I think it’s unlikely to find an “entry-level” adviser with fiduciary duty if you are just starting saving as they usually tend to handle large portfolios. This doesn’t mean it’s impossible to get a good advisor, I’m sure there are hard-working people who do take care of their client (within the limitation imposed by their company of course).
Verdict: Mostly Busted! You don’t absolutely need a financial adviser/advisor, you can DIY your investment or use a robo-advisor. Yet, a good adviser could help those who lack the initiative to save.
Disclaimer: These are just my opinions, you solely are responsible for any investment decision you make. I might get compensated if you act on some of the referral links posted above.