After my obtaining my undergraduate degree, I took a year off before going back to school. I got a full-time job in a bank, and boom! My financial education really began. Despite the good example set by my parents, working in a banking institution is where I really learned about banks and how to use them to my advantage when it came to my day-to-day money.
My first lesson was that the bank’s products might not be in the customer’s best interest. Each month, there was a marketing promotion where we – the tellers – were required to sell products to customers. The first campaign that I was involved in was selling home-equity lines of credit (HELOC). A HELOC is a debt product where the collateral is your home. By using it, the customer is able to spend down the equity value of their home up to the HELOC’s limit and the customer pays the bank interest for the privilege of spending their own equity. It took me a little bit to understand that the bank was essentially asking people to buy debt, but I eventually got the gist of the product. One of our suggested hooks for selling the HELOC was to tell customers that they could borrow money from a HELOC to invest in their RRSP and then repay the borrowed money in monthly equal instalments. All I could ask myself was: why not simply make that same monthly payment to your RRSP directly instead of paying that same amount to the bank in the form of a loan repayment, which comes with an interest penalty? (Obviously, I was restricted from asking the customers this question. Doing so might have led the customer to not acquire a HELOC, which meant that the customer wouldn’t go into debt and the bank wouldn’t get paid interest.)
It took me a long time to realize that the hook of depositing the money to the RRSP now instead of later was simply a form of immediate gratification. My method of making payments to one’s RRSP over the upcoming year was a form of deferred gratification. Of course, my method meant that the bank didn’t make money from the interest charged on the loan from the HELOC so I was not permitted to suggest my method to the customer even though my method was in the customer’s best interest. Since the bank was paying my wages at the time, part of my job was pretending that what was important to the bank was also important to me. (That particular lesson has served me well in every employment position I’ve had since leaving the bank!)
The second thing I learned from my time as a teller is that banks care more about customers’ money than customers do. It wasn’t that the customers didn’t care at all about their money. It was simply that the bank cared more and was far more effective in keeping the money than the customers were. Surprisingly to me, it wasn’t very hard at all to get people to sign up for credit cards and credit products. People craved credit, which is another way of saying that people very much wanted the ability to go into debt to the bank. I don’t know what they did with their credit, but I was always surprised that they wanted credit more than they wanted to have money in their bank accounts.
The third thing I learned at the bank was that paying off a mortgage was a smart move. I’ll never forget one customer who came in on a Saturday to make a lump sum deposit of $20,000 against his mortgage. When I asked the loans officer why the customer had done this, I received my very first lesson about how the act of making lump sum payments immediately decreases the amount of interest owed on a mortgage. Right then and there, I promised myself that I would make extra payments against my mortgage once I had one. When I worked at the bank, an interest rate of 7% was not uncommon. This was well before 2001 when rates started dropping to historic lows. (One of my friends was able to secure a 5-year rate at 2.39% on her rental property – sweet! I doubt I’ll ever see rates drop that low again in my lifetime.) When I obtained my first mortgage in 2001, the rate was 6.5% and I took advantage of prepayment options to pay it down quickly. I then re-mortgaged my property for a rate of 4.79% in 2004. When I re-financed my most recent mortgage in 2015, I was able to secure a 5-year rate at 2.99%! Sadly for me, I’m quite certain that I will be renewing my mortgage at a rate of atleast 4% in 2020 given that the mortgage rates have started to climb.
Fourthly, I learned about bank fees and how to avoid them. Essentially, you can keep a large amount of money in the bank as a float to ensure that you aren’t charged bank fees. That float ranges anywhere from $2500 to $7500, depending on the bank and the type of account on offer. Alternatively, you can open an account with one of the online banks. Right now, Simplii (formerly PC Financial) and Tangerine offer free banking. If you aren’t already with them, make the switch and keep your bank fees for yourself. Why are you paying bank fees if you don’t have to? Aren’t you better-served by keeping that money for yourself to be used to achieve your personal goals? Never ever forget that paying bank fees is a choice that you make as a customer. Bank fees are not an addiction. You have the power to open a no-fee bank account and to use it the same way that you use expensive, fee-generating bank accounts. You might have to use a bank but that doesn’t mean you have to pay service fees or interest to do so. As a customer, you have choices and you have the power to keep more of your own money.
I worked at that bank every Saturday for roughly three years after I went back to school full-time. It was not a particularly glamorous job and it definitely cemented my belief that working directly with the public is not for me. However, my time spent at the bank was invaluable because it taught me a great deal about how the banking industry systematically and ever-so-efficiently fleeces its customers and what steps customers can take to level the playing field. These lessons will stay with me for a very long time.