DON'T BANK ON SAVINGS
DON'T BANK ON SAVINGS
"If you invest your tuppence wisely in the bank, safe and sound, soon
that tuppence, safely invested in the bank, will com-pound." So the
aging father in the classic movie Mary Poppins encouraged Jane and
Michael Banks to deposit their money into a savings account at the
Dawes, Tombs, Mousely, Grubbs Fidelity, Fiduciary Bank of England
and "watch it bloom into a generous amount."
Today, however, Mr. Banks might have trouble finding a bank to take
his children's money, especially one where it will earn interest
worth singing about.
A savings account was once the place where people could safely secure
their money and watch it grow, but now it seems things have
changed. "People still have savings accounts, but it's my sense that
most people's debt load overwhelms any chance at saving," says
Allison Glencross, a Canadian Imperial Bank of Commerce account
manager in Nanaimo, B.C. "Plus interest rates don't make it
worthwhile." To be eligible for a no-fee, maximum interest savings
account at CIBC, a $1,000 balance is required. "There's plenty of
active savings accounts, even though many people fail to maintain the
$1,000 balance and end up paying the service fees," says Glencross.
That banks have apparently abandoned their traditional territory
rankles some customers. Elise Covich opened savings accounts for her
children at a Toronto-Dominion (now TD Canada Trust) branch in
Nanaimo. The bank advertises "specialty" accounts for kids, but when
Covich's were unable to make regular deposits, TD was quick to be rid
of them. Covich attempted to make a surprise Christmas gift deposit
to the accounts and discovered, to her stunned surprise, that the
bank had shut them down. She was told she could apply to get their
money back, but that could take up to three months.
A spokesperson for the TD says that Covich was notified by mail that
her children's accounts had become dormant after six months of
inactivity. All accounts are regularly reviewed in an effort to keep
administration costs down. Covich doesn't recall receiving the notice
and, in any event, complains that the interest paid on the accounts
is so insignificant she can't be bothered to re-open them.
But it's impossible to know for sure whether savings account are on
the way out, as bankers, uncharacteristically, aren't sure of the
numbers. "I don't think there's been a decline in savings accounts,"
says John Mitchell, an associate with the Canadian Bankers
Association in Vancouver, "but then I'm not aware of any research
being done. The only thing I'm aware of is the, sort of, anecdotal
evidence you hear around the coffee pot in the morning." He seems to
be right about the research; there isn't any. Along with the Bank of
Canada, the CBA tracks many, varied banking trends (for example, rate
of inflation, growth in mutual funds, and the value of Canadian and
foreign currencies), but not the number of current, Canadian bank
savings accounts or the amount of dollars held in them by personal
depositors.
Which leaves us with the anecdotal evidence. While not acknowledging
a decline in any specific type of account, Sara Best, a Royal Bank
media relations associate says, "Personal chequing and savings
accounts, depending on the customer's preference, have simply become
transaction accounts." That's a happy fact for the banks -- almost 75
percent of their total business is now related to the routine flow of
money in and out of accounts, a number which has been steadily
increasing over the past ten years as electronic banking has become
more widespread. Adds Best, "Customers are more savvy now with their
money, so no, probably there aren't as many people out there holding
large sums of money in personal savings."
Still, the banks present themselves as good places to hoard dollars,
even if the reality is somewhat different. The CIBC's "Maximize
Interest Account" boasts the sales pitch, "Earn interest on every
penny in your account". (One would hope so.) This savings account
offers an annual interest rate, calculated daily and paid monthly, of
0.1% on balances up to $4,999.99. Even on a daily account balance of
$1,000, the interest paid annually would only amount to $10.
Remember, if the balance in the account falls below the $1,000
minimum, then service fees kick in for the month, including charges
for every transaction made.
Are customers who go for this sort of thing out of their financial
minds? Not necessarily, says Glencross. She suggests that people may
just be too busy to worry about maintaining minimums or really don't
understand how to better invest their money. "I know that, at our
branch, we strongly encourage people who are interested in savings to
put their money into money market mutual funds or GIC's so that, at
the very least, they're getting a short-term T-bill rate. This way
their money is still theoretically in savings; it's just not savings
inside the bank."
In Mary Poppins, the bank chairman, Dawes, says to Michael
Banks, "Feed the birds and what have you got? (theatrical beat) Fat
birds!" Too bad the same can't be said for Michael's pocketbook. If
he invested his tuppence in the Dawes, Tombs, Mousely, Grubbs,
Fidelity, Fiduciary Bank today, at a rate of 1.25% annually, by the
end of the year he'd have earned approximately 0.002 cents on his 1.5
cent original investment.
Some might say: feed the birds. Somebody might as well get fat.
My Advice: Invest in good Gold-stocks like EGX and there's a chance
your tuppence will more than 100 fold,
imo. All the Best! /W
