My bank’s checking account has a $3.95 monthly fee. However this fee is dropped if I have at least $1,500 in that account for the entire month. Typical right? Just about every bank does this. Keep a minimum balance in your account, and the account fee is waived! I used to maintain the minimum balance to avoid paying fees. But I wasn’t too happy about it because I was essentially lending the bank my money, interest free.
Of course not everyone banks with TD. But this strategy is transferable. Here’s some basic information on a few other banks below.
BMO Practical Plan Chq Acct: Fee = $4.00/month. Waived with $1,000. BMO’s stock dividend yields 4.80%
CIBC Everday Chq Acct: Fee = $3.90/month. Waived with $1,000. CIBC yields 4.69%
Scotiabank Powerchequing Acct: Fee = $3.95/month. Waived with $1,000. Bank of Nova Scotia yields 3.96%
But I can see why this may not be a good idea for some people. This strategy does come with risks after all. You risk the banks cutting their dividends in the future, even though they all have a solid history of growing them. You also risk losing some of your initial investment if their share prices drop and never recover, even though banks are the oldest and largest companies in Canada and the backbone to our whole economy. For short term investors and those who want to play it safe, keep your balance in the bank to save yourself some money. But if you want to live on the edge like me, then don’t let your bank hold your money to only benefit their own interests. Buy a piece of your bank instead and profit with them, and by the time you retire maybe you’ll be a little wealthier than if you hadn’t. (^_~)
*Opportunity Cost – Losing the opportunity to profit from a choice, because another choice was taken. Go ask an economist for a better explanation (>_<)
*few dollars of tax – The dividend tax credit makes dividend income very tax friendly. Depending on your location and other income, you may not have to pay any taxes on dividends at all.
*payout ratio – To be explained in a future post.