Nobody likes to pay banking fees. But most monthly service charges can be waived if we sign up for additional accounts/services, or keep the minimum monthly balance in the account. (eg: maintain at least $1,500 in a Bank of Montreal chequing account to waive the $4 fee.)
My personal account is with TD Canada Trust, which charges $3.95/month unless a minimum balance of $1,500 is held in the account at all times. But sitting on unused money can be a waste of capital. 😕 So 3 years ago I introduced an alternative solution to deal with those pesky bank fees. Rather than pay the bank to hold my money, I made the bank pay me instead! 😉
Hedge Bank Fees with Bank Stocks
Here’s what I did in a nutshell.
- Transfer the $1,500 from my chequing acct to my brokerage acct and use it all to buy TD shares (38 in today’s shares)
- Receive dividend payments every quarter as a TD Bank shareholder
- Use said dividends to pay for the $3.95 monthly service fee associated with my chequing account
(see my original post from February 2012 for more details.)
Since it’s been a few years I thought I’d post an update to show how my strategy has turned out so far.
2012 – Paid $3.95 x 12 months = $47.40 in fees. But also received $56.24 in dividend income. Difference = +$8.84
2013 – Paid $3.95 x 12 months = $47.40 in fees. But also received $60.80 in dividend income. Difference = +$13.40
2014 – Paid $3.95 x 12 months = $47.40 in fees. But also received $71.44 in dividend income. Difference = +$24.04
Net gain = $46
Yay. 😀 Rather than keep $1,500 in my bank account which wouldn’t have earned me any interest, I put that money to work instead and have successfully made my bank pay me $46 over the last 3 years. And here’s a list of other benefits I also get to enjoy. 😉
- TD increased its dividend payments by 27% since 2012 and will likely continue to raise it over time.
- Even if my monthly account fee was raised to $5/month my TD dividends income would still be more.
- I don’t have to worry if the minimum balance to waive the monthly account fee was increased from the current $1,500.
- TD shares are now 30% higher than 3 years ago. This means my $1,500 initial investment in TD is now worth $1,950! 🙂
Wow! This is so much win. The primary point of this hedging strategy was to save money on banking fees, but apparently it has also made me $450 (capital appreciation) + $46 (net dividend earnings) richer! And it’s all passively generated, so no work was required besides the initial stock purchase. Below is a 5 year stock chart of TD. (click to biggify)
Having the Right Attitude
The poor and middle class often think it’s either me or them; it’s one or the other; if he earns more money then there’s less money for me to make. But financially successful people think in terms of both. Instead of either or, rich people will try to find mutually beneficial outcomes for both parties. I believe the way to become rich is to adopt this both mentality. 😎
Instead of thinking “how can I prevent the bank from taking more of my money,” we need to consider instead, “How can both of us make money?” Through this win-win type of thinking we can discover new ways to tackle old problems like with banking fees. We can pay our monthly account fees so the banks can make more money. And then we turn their profitability into our advantage by owning a piece of their company, and thereby also being entitled to a portion of all their future profits. 😉
Of course the risk with my strategy lies in the possibility of a dividend cut, or even worse, a bank failure. 🙁 And if there was an earthquake a bank could potentially go into default. 😀 But those are minor risks I’m willing to take given the potential upside I’ve seen so far.
Other methods to save on bank fees include politely asking your bank to waive your fees, consolidating all your accounts to one financial institution, and switching to a no fee bank account with a credit union or an online bank, eg: PC Financial or Tangerine.
It may seem counter intuitive to mitigate banking expenses by purposefully paying them, but the world of finance can work in strange ways. 😀 We just have to think big picture!
Random Useless Fact:
In Canada, average life expectancy for males born in 2012 is 80 and for females 84, according to World Health Statistics.