I’ve mentioned in an earlier post that most of the big 5 banks in Canada are raising banking fees this year. But there is a silver lining. See if you can follow along with this plan.
The minimum balance required to wave the $3.95 monthly fee on my TD bank account used to be $1000. So for that reason I’ve always held at least the minimum in my account before. I basically save $47.40 a year. In other words, if I could make more than $47.40 a year (after tax) with that $1000 (or 4.74%), then I would be better off investing that money in the financial markets and just pay the monthly service fee.
However, starting this month, the minimum requirement to waive the fee has gone up to $1500, but the fee itself remains unchanged at $3.95/month. I now have $500 more capital at my disposal if I choose to invest it. $47.40 from $1500 means I only need to make a 3.16% total return (after tax) in order to cover my bank account fees. Making 3.16% per year for the foreseeable future sounds a lot more doable than 4.74%. So from now on I’ll put the $1500 (that would’ve been tied up in my checking account) into buying common shares of TD Bank, and just pay the $3.95 monthly fee. Here’s why.
TD shares currently pay a healthy dividend of 3.50%, at less than 50% payout ratio (very safe,) which means the dividend alone paid to me, even after tax, which ends up being about 3.3%, is enough to cover the 3.16% return I need, to break even. Not to mention the future potential for dividend growth and capital appreciation. Plus, many people who kept $1000 in their accounts before to avoid the monthly fee will just top-off to $1500 starting now, which will give TD more capital to grow its business boosting value for its shareholders (me.)
In the end, this method is a little risky but if the banks are going to grow and make money at the expense of their customers, then it’s like that saying if you can’t beat them, join them. Of course only time will tell how this will play out. Don’t try anything on this blog without consulting with a financial advisor first.
