- Unlimited transactions
- Free drafts/certified cheques
- Discount on safety deposit box rental
- Discount/waiver of credit card or discount brokerage annual fees
I was curious recently as to just how favourable the fee/interest trade-off turns out to be, so I decided to run some numbers. Using the BMO account as an example, I worked out what APR would correspond to $25 per month on a $4,500 balance. Assuming a 40% marginal tax rate (since interest income is taxed at the full marginal rate), I came up with the following:
- $25 = $4,500 X ((1 + APR / 365)^30 - 1) X (1 - 0.4)
- APR = 365 X ((($25 / 0.6) / $4,500 + 1)^(1 / 30) - 1)
- APR = 11.22%
One of the best rates currently available for a Canadian savings account is Canadian Tire's 2.00%. At this rate, a $4,500 balance would earn a mere $4.44 per month after taxes. This means that, with today's interest rates, keeping the minimum balance in this account essentially means that you're "paying" a $4.44 monthly fee for the use of the account. If you take advantage of the features of the account, this can turn out to be extremely worthwhile (a safety deposit box rental can easily run $4 per month).
This doesn't mean that a high-end chequing account is automatically worth it, but it does mean that, at least for the foreseeable future, the cost of such an account is significantly reduced by maintaining the minimum balance.