Highlights:
- This article might help you uncover an extra $3000, $5000, even $6000 to invest
- If you need to keep a minimum balance in your bank account, your money’s working for the bank, not you
- How I stopped paying banking fees (and kept more money for myself)
“We have to keep at least $6,000 in our bank account at all times, or else we’ll get charged fees.”
When my friend told me this, I was shocked.
For one thing, there are the fees. I haven’t paid banking fees in 15 years.
But the minimum balance is just as important. Nobody should have to tie up thousands of dollars just to do basic banking!
We’re talking about why this isn’t great for your finances, what you can do instead.
Why stay away from bank accounts that require minimum balances
Your money is locked up
These minimums are restrictive and affect how you use your own money.
Dip below the threshold for even a day, and you could lose perks or get slapped with a fee.
This can mess with your cash flow or force you to keep more in the account than you really need.
Plus, many people need to keep thousands more in that account just so they have money to pull from.
You could face unexpected fees
It's not uncommon to be charged anywhere from $10 to $30 per month if your balance falls below the minimum - even temporarily.
If that happens once a month, it could cost $360 a year just to hold your own money.
No wonder banks are so great at turning a profit!
If you continue using one of these accounts, at least set a notification when your balance gets low so you can top it up and don’t get dinged with fees.
You’re missing out on better returns
That $6,000 could be doing a lot more elsewhere:
✔️ Invested in a TFSA or RRSP for retirement
✔️ Earning 3-4% (or more) in a high-interest savings account
✔️ Paying down high-interest debt
✔️ Padding your emergency fund
It gives a false sense of security
Some people associate high minimums with higher quality service. But that doesn't always hold up.
Many of these "premium" accounts offer the same support and worse interest rates than no-fee alternatives.
You're not getting VIP treatment - you’re just keeping your money somewhere that helps the bank’s bottom line, not yours.
You’re giving the bank a free loan
Here’s the kicker…
When you leave money in a low-yield bank account just to dodge a fee, you're giving the bank a free loan.
As Vivian Tu shares in her video,
“When you put money into a savings account, you’re essentially giving the bank a loan. They'll then turn around and lend that money out to people, and you better believe, they're charging those people interest.”
In return? Traditional banks often pay you less than 0.1%. “If you put $100 into a savings account, at the end of the year, you'll have $100.06.”
“Wait, what? The bank is using my money?”
Yes. Banks are smart.
They know that they can use money to make more money.
And with each client having thousands squirreled away in minimum bank balances, they have plenty at their disposal.
How banks use your money to generate revenue
Banks don’t keep your money sitting in a vault.
They hold onto a small portion, and lend out the rest to make money from interest.
This is called fractional reserve banking, and it’s how they earn a big chunk of their profits.
When you keep a minimum balance in your account, you're basically giving them money they can lend out and generate interest from.
“The Big Five” banks combined manage trillions of dollars.
According to Investopedia, “Royal Bank of Canada recorded total net assets under management of $1.223 trillion. It also reported $6.6 billion of net interest income.”
No wonder banks want us to park our money in their account!
They’re earning billions from our dollars.
You could be getting that interest instead!
Let’s say you invest that $6,000 at 8% annual return. After 30 years, you’ll have over $60,000.
That’s the magic of compound interest! Pretty great for not adding a penny more.
What if you don’t maintain the minimum balance?
You’re better off investing that money and paying the bank fees.
In 30 years, you’ll pay over $10,000 in fees - but you'd still be $50,000 ahead thanks to your investments.
That’s why high balances to save on fees are a false economy: in reality, you’re losing out. You’d make much more if your money were invested.
So you’ve got 3 opinions:
1: Stay with the bank, maintain the minimum balance, and save $10,000
2: Stay with the bank, pay the fees, invest the minimum balance, and be ahead by $50,000 in retirement
3: Switch to a no-fee bank, invest what was previously your minimum balance, and be ahead by $60,000 in retirement!
Ready for free banking? Try these!
Choose a new bank
There are so many good options out there now, you can definitely find a bank that doesn’t require you to stash thousands of dollars simply for the privilege of banking with them.
Plus, you can often get better interest rates on high-interest savings accounts!
Here are some options to check out:
Use a credit union
I banked for free with a credit union for years.
Of course, check the fine print - some have fees like traditional banks, but many offer free banking.
Negotiate
In some cases, keeping your account at a traditional bank still makes sense.
For example, we have a mortgage through National Bank - and they require us to have an account.
However, we negotiated to have them cover all the banking fees (normally $28.95 a month).
We’ve had this account for almost 9 years now, and haven’t paid a penny in fees - or kept a minimum balance.
Bye, bank!
Use a bank that works for you
There are so many no-fee banks out there with services that are comparable to the big banks.
Many now offer services that traditional banks offer, or even charge for - like debit cards, ATM usage, and Interac transfers.
Setting up a new account can take as little as 10 minutes!
Once you no longer need to keep a minimum balance, you have more money to invest!
And if you want to make investing easy, Passiv is exactly what you need to stay on track with your goals.
It connects to your brokerage account, lets you build a target portfolio, and keeps everything balanced.
Use the “Forever Free” plan, and never use spreadsheets to manage your investments again!
Get Passiv for free!
