Posts Tagged "savings accounts"

You are going to Interview the CEO of ING Direct Canada

Posted by Preet on Sep 14, 2009 | 22 comments

WhereDoesAllMyMoneyGo.com

Yes, you read that correctly. YOU are going to interview the President and CEO of ING Direct Canada, Peter Aceto. Well, let me explain further… I will actually be the one asking the questions, but the questions I will ask are going to come from the readers of this blog.

I would ask for you to please leave your questions as a comment on the bottom of this post. If you are reading via email or Facebook, then please click here to go the blog’s website where you will find the comment form. Not all questions will be selected for the interview (like: “Peter, what’s your shoe size?”), but I encourage you to think of something and contribute (like: “Peter, are you going to launch a no-fee chequing account to complement the no-fee savings account anytime soon?”).

Peter looks like a pretty cool guy, note how “plugged in” he is:

I’m looking forward to the interview and I’m counting on your questions, so don’t be shy! :)

Before I go, here is a video from Peter discussing unfair banking fees.

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Interest: Think of it as "rent"

Posted by Preet on Jul 31, 2007 | 0 comments

I don’t think many people explain it this way, but it is probably the best analogy I’ve heard. Rent is paying for the “use” of something: like renting a movie, an apartment or house or a car.  You never own the item, but you get to enjoy the use of it for a specified period of time. Interest in the financial world is exactly the same thing, except you are renting money!

If you go back to the post that talks about how banks make money on your savings account, you’ll remember that they give you interest, but take your money and give it out in the form of a mortgage at a higher rate of interest.  So they are “renting” the use of your money and paying you “rent” in the form of interest.  They are also turning that around and renting it out to the mortgagor who pays interest on their mortgage (rent TO the bank).

To take the example even further, if you were a landlord and renting out a room, the rent you collect is taxable as income.  It’s just like earning money from a 9-5 job. Similarly, the interest you collect on your investments is fully taxable as well (not to be confused with “Dividends”, “Capital Gains” or “Return of Capital” distributions). Even the interest you collect on your savings accounts is technically taxable income.  The banks will send you a form  (a T5) that indicates the amount of interest you earned and have to report on your tax return.  However, they generally don’t do this if the interest amount is less than $50.  But if you had $100,000 in your savings account they certainly would send it out, and you certainly would be expected to claim it and pay tax on it!




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Your savings account choices could save you $100,000 over your working life!

Posted by Preet on Jul 25, 2007 | 0 comments

Let’s take a look at how a relatively simple decision can make such a huge impact.  Many traditional banks charge monthly account fees. My personal account with my previous bank charged $11/month and it paid 2% in interest.

Some “virtual banks” like ING and President’s Choice Financial have savings accounts that have no monthly fees. They typically pay a higher interest rate as well, for this example let’s call it 4%.

Let’s examine what the real cost is:

$11/month x 12 months = $132/year

But let’s take is a step further. Many banks offer a lower-fee or fee-free account to students or kids until they turn 18 – so let’s assume that we have this $11 monthly account fee from age 18 to age 65 (again, many banks have a reduced monthly fee for seniors).

Let us also assume that we are wise and decide to invest this saved money into an investment portfolio that averages 8% per year.

$132/year @ 8% rate of return x 47 years = $59,783 that could’ve been in my pocket!

So if you have a savings account at a bank that charges a monthly fee, you can see that even a few dollars a month makes a big difference.  If anyone would like to step up to the plate and provide their monthly account fee and age, I will calculate your “money lost” and post it here as well. (Warning: it’s depressing!)

Note: we haven’t looked at how much less interest you earned inside your savings account during that time! Since the average, free high-interest savings account pays roughly 2% more than a traditional bank, and assuming that the savings account holds an average balance of $5000, then you are foregoing an additional $100 year in interest paid to you.

I guess I’m feeling sadistic, so let’s look at the new final total:

($132/year (account fee) + $100/year (lost interest)) @ 8% x 47 years = $105,073.

So, about 15 minutes to setup your new account today could save you over $100,000. What are you waiting for?

Disclaimer!: Most people will not invest the savings because it is not an established habit – in which case your savings will be a *paltry* $10,904 over 47 years. That is the magic of compound interest – which I will cover in another post!

I hope this post helped you out! :)




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