Beautiful fall colors at Meech Lake, Quebec, Canada
Where are Kevin and Ruth right now? Osgoode (Ottawa), Ontario, Canada.

Where are they going next? Lima, Peru on October 14th.

Saturday, September 21, 2019

You deserve to know why we are changing banks

I mentioned earlier this week that we began the transition to a different bank here in Canada. We have been with TD Bank for over 30 years, but their fees were no longer the best deal for our lifestyle.

During this transition though, I became frustrated with the fact that I had to do this at all. It's a pain in the butt changing banks. But my math said that we would save around $700 a year... so it's worth it!

I decided that after such a long relationship, the bank needed to know why we were leaving. So I wrote an email to the CEO of TD Bank.

This guy made $15 million in salary and benefits last year. So I figure he's probably way out of touch with us little guys. But, the little guys make up a huge chunk of the bank's customer base.

TD Bank itself announced their quarterly earnings a little while ago, topping the big five Canadian banks at $3.25 billion CAD. They are doing really well.

But, they will no longer make money from me!

Here is what I wrote to the big guy himself...

You deserve to know why we are changing banks

Good afternoon Mr. Masrani,

As a long time loyal retail customer of (originally) Canada Trust and then TD Bank, I feel it is important to let you know why my wife and I are changing banks after more than 30 years.

We travel a lot. And when I read last year that you quietly increased your ATM foreign exchange fees to 3.5% from the industry standard 2.5%, I thought that sounded just a little bit greedy. But, I stuck with you and made a commitment to use my TD First Class Travel Visa as much as possible to keep my fees at the 2.5% level.

But, when one of your major competitors (Scotiabank!) recently came out with a travel Visa credit card with ZERO foreign exchange fees, I knew it was time to make the switch.

And reading your recent earnings report was the final impetus I needed to get on with the  transition!

Having said all of that, I think that during the next recession, I will buy some shares in your bank despite the fact that I will no longer be a customer!

A frustrated little guy,

Kevin Read

I would have been surprised to get a response from him personally, and of course I did not. However, I did get a phone call from the Customer Care Manager in the President's Office.

She and I spoke at length, and I explained in more detail my concerns. She said that she appreciated the fact that I took the time to write, saying that sometimes they really don't know unless the customer tells them. And, that my suggestions do go to a round table discussion by the higher ups.

One of the reasons banks can make so much money from foreign exchange is that they are under no obligation to disclose how much their fee is when they do a transaction with the public. Their "fee" is simply built into a poor foreign exchange rate. And, I've learned that the general public doesn't understand foreign exchange, so it's easy for the banks to take advantage of them.

I'll give you an example. (I use an app called xe.com for true spot rates)

If I have a check for $1,000 USD, and I want to deposit it to my bank in Canada in $CAD, the true spot exchange rate says that I should receive $1,326 CAD at Friday's closing rate.

However, the amount deposited to my account would only be $1,295 CAD because the bank pockets $31 CAD doing the transaction. But nowhere do they tell you their fee... you only see the exchange rate.

Now figure that they also take 2.5% of every debit transaction in foreign currency. When you take $500 CAD out of a foreign ATM, the bank pockets $12.50 on the deal.

Canadian credit cards are the same. The vast majority of them charge 2.5% foreign transaction fees. Canadians as a percentage travel much more than the Americans so the Canadian banks have a bigger incentive to take advantage of this. Many American credit cards do not charge this fee, although some do.

Anyhow, I hope you've learned something today, and maybe will be able to save some money as well!

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And in Canada...

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25 comments:

  1. We've been TD shareholders for some time now (and have given shares to each of the kids as Christmas presents) Their profits are consistently good for shareholder. Not the customers however. We've never been customers, nor ever would be. Same as Bell. Not a customer, but LOOVVE their dividends!

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    1. As Kevin said, we will most likely by shares in TD Bank as well but we are finished with being customers of theirs. :-)

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  2. I did learn something, thanks!!

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    1. We hope that the information was helpful.

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  3. Thanks for taking the time to research this and write to the CEO. MOST PEOPLE WOULD NOT DO THIS.

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    1. You are correct, most people wouldn't do this. They can't fix things if they don't know what is wrong. Not that they will fix it but at least they know we haven't been happy with their banking policies lately.

      We also do this when companies have given us fantastic service, it goes both ways. :-)

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  4. This is the part of the puzzle most people don't understand, aren't aware of or simply care to ignore. This is not about the customer, it is about the stockholder. Many older or retired people talk about poor minimum wages, imported Chinese products, price of fuel, etc. yet they are vested in those companies and earn income from them.

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    1. Yep, you are totally right! Which really is a shame. :-(

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    2. As an accountant we are taught that every organization exists purely to maximize shareholder wealth. As accountants we are working to minimize the risks daily to that strategy. Whats the risk to maximization of shareholder wealth and where are the controls to mitigate the risk is the mantra. Its a useful piece of knowledge.

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    3. I wish to add - this does not apply to non profit organizations or charities, therefore its not EVERY organization.

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    4. Yep we totally get that but it is still a shame because the shareholder won't be there if it weren't the the little guys like us.

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  5. A few years ago we had the same problem, We live full time in Mexico, we used Bank of America who had a relationship with Banco Santander at the time and they charged no foreign transaction fee for withdrawal in Mexico. Overnight that relationship ended and B of A started charging 3% and us little people living here in Mexico took a 3% cut in pay. We have since changed our banking to USAA and are very happy. Sometimes they just make you do it. And some folks just keep on paying.

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    1. Good that you noticed the change and the extra money it was costing you. It may not seem like a lot each time you withdrawal money but it all adds up over time and that money is better in your pocket than their pocket! We are happy to hear that you made the change and it is working out better for you. :-)

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  6. Kevin...The CSA, Canadian Snowbird Association has a CDN to USA currency exchange program with no fees a great rates. They pool money from many members and get wholesale rates at the currency exchange houses. The only caveat is it takes 5-6 days for the money to show up in your US bank acct. But its worth the savings. Its a trustworthy way to do it also. And you do not have to be a snowbird member to do it.

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    1. Interesting. That certainly is a better way to do things for anybody who regularly spends all winter in the United States. I would suggest though, that a company like Transferwise would save you even more money. Based on the available information from the CSA, it's difficult to say for sure because they don't specify what mark up is used. Yes, the figure is certainly better than the 3 examples they show. But you would have to dig deeper to make an accurate comparison to Transferwise.

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  7. Also we have a RBC US bank acct and credit card and is repaid with US funds from this exchange so we never pay the ridiculous exchange fees credit cards charge.

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    1. But, you ARE still paying a markup, although it is much better than the banks normal rate. I prefer the no-foreign exchange fee Visa from Scotiabank, pus you get points.

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  8. We've found the need to keep switching banks or running with more than one. Some offer free travel insurance (which you can pay to increase duration, countries etc) others free or cheap cash withdrawals abroad. Only a few weeks ago we joined "Starling" bank which are the fastest growing bank in UK and offer not only free cash withdrawals abroad at a great rate but interest in your money. It sure pays to keep up with changes as you have done. Looks after the pennies and the pounds will look after themselves

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    1. We can totally understand the reasoning behind this. It is something that you have to constantly beware of, especially when you are traveling as much as you guys and ourselves.

      That is our motto too, except that for us it is dollars not pounds. Some people look at us funny when we talk about saving a few pennies here or there but it all adds up and we would rather have it in our pocket than someone else's.

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  9. Kevin I'm not sure what you mean by markup. CSA uses the current exchange rate on the day they exchange all the money. The more money they have in the pool the better rate they get. There are no transaction fees, if thats what you mean by markup.
    The exchange rate you see in the XE app are wholesale rates. To get a wholesale rate you need to exchange at least 1 Million. So now I am assuming you mean "markup" to be what banks add to the wholesale rate. I received this info from CSA before I signed up with them. I'll look into Transferwise Kevin but I doubt its better that CSA. With our RBC US and CDN accounts and CSA exchange its a breeze to control our US money. On another note they only do the exchanges on the first of the month and you need a USA bank acct for the money to be transferred into. If you haven't looked into to CSA before you should. Their travel insurance is top notch , Medipac, and the whole organizations caters to Canadians traveling to the USA, Mexico to I would imagine.

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    1. The exchange rate in the XE app is the "true", or "spot" rate. Whatever rate CSA gets will still have a mark up to that. I would like to see the fine print in the CSA agreement, but I can't find it online. With Transferwise, you get the spot rate, plus a fee. However, we are probably arguing over pennies. CSA is certainly a far better deal than the retail banks. Yes, I've looked into CSA, but it is geared towards Canadians wintering in the U.S. and we really do not spend much time there.

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  10. There is "Norbert's Gambit" to look at also. Buy any dual listed USD stock and sell the Canadian equivalent short in the same number of shares.

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  11. Very helpful information! Thanks!

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