Opening the Right Kind of Bank Account: Chequing vs. Savings, and Fees.

by Chris W. Rea on October 27, 2011

This is the second post in the getting started with your finances series.

Opening a bank account sounds boring and odds are you already have one. Why mention it? Don’t most bank accounts work more or less the same way? You deposit money, withdraw money, pay bills, write cheques, and once in a while if you’re lucky the bank will reward you interest as compensation for lending them money. Right? As a generalization, perhaps. But in real life, bank accounts can be complex products with specific features, intended uses, and fees that you should make yourself aware of.

The two main kinds of personal bank account you will come across are the chequing account and the savings account. What’s the major difference?

  • The chequing account is geared towards frequent transactions such as ATM cash withdrawals, bill payments, and writing cheques. Little or no interest is offered on the balance.
  • The savings account is primarily an interest-bearing account designed for accumulation of cash savings and interest. Fees quickly add up for non-deposit transactions.

The bank account I suggest you start with is a chequing account. You will need an account into which you deposit pay, and from where you can withdraw spending money, make regular bill payments, and write cheques. (These days you are more likely to pay bills through your bank’s online banking service, but cheques are still useful now and then.) Once you add up the number of expected withdrawals, bill payments, and cheques, it’s a handful of transactions per month. The potential fees add up.

The bank fees issue is important to understand. You shouldn’t have to pay much for the right to have a bank account. Too many people chase interest rates, not realizing that fees are the more important consideration. Unless you have cash savings in excess of, say, $15,000, you’re more likely to be impacted by potential fees on transactions than benefit from interest on your savings.

When I was a teen, I had opened a “youth” account with one of the major banks. The youth account had no monthly fee, and a good number of free transactions until age 18. I was ignorant, and it was perfect for a while. I used the account to deposit earnings from part-time jobs, gift money, and so on. I often neglected to get my passbook’s account history updated, and as a result I did not notice until well after age 19 that my balance had been getting eroded by the monthly fees incurred since age 18!

I was fortunate to learn my lesson about fees early, and have since sought to avoid fees on financial products. I also pay closer attention to my balance and monthly transactions.

When you go to open a new bank account, look carefully at your available chequing account plan options, the number and type of transactions included in each, and the monthly fees.

Banks will often waive the monthly account fee if you maintain a minimum balance. Consider a plan where you will have an adequate number of included transactions per month and can maintain the minimum balance to avoid the monthly fee.

Later, when you find you are consistently exceeding the minimum balance by a significant amount, you should consider opening a supplemental savings or other investment account to realize a better return on your excess funds.

Additional Resources

For more advice on specific strategies and available chequing accounts, here are some useful resources:


Just Graduated, Got Your First Job & Pay Cheque? Here's a Road Map to Getting Started with Money & Finances.

by Chris W. Rea on October 21, 2011

Have you just graduated from college or university, landed your first job, and are waiting for your first pay cheque? Congratulations! Now what? If you have not thought about what comes next in your financial life, you may fall into bad habits with your money, or continue bad habits you already have.

Why should you strive to develop good money habits? By handling money better, you can focus more on the things in life that matter most. If you don’t handle your money well, you risk increased stress and anxiety over money. The more debt you carry, the less you will feel in control of your own life. Having good money habits is liberating.

I had bad habits and made mistakes with money when I was younger. I received good advice along the way, but a road map would have helped. I would like to share what I think are good steps to get you started. I’ll explore each of these steps in coming posts.

The Road-Map for Getting Started with Money & Finances

  1. Open an appropriate bank account, and understand the fees involved.
  2. Resist buying shiny new toys. Strike a balance between savings and consumption.
  3. Resist taking on more debt.
  4. Establish a plan to pay down remaining debt, like that student MasterCard.
  5. Establish a plan for building an emergency or rainy day fund.
  6. Consider taking advantage of any plans and benefits at your new job.
  7. Establish an investment plan to build long-term savings.
  8. Contemplate future purchases and commitments: a car? rent? a house?
  9. Start paying attention to financial things: open bills when they arrive, read the news, ask questions.

RRSP Value Dropped? Avoid a Classic Investing Mistake: Selling Low.

by Chris W. Rea on October 14, 2011

Someone I know asked me for my thoughts recently on the subject of their retirement investments. We agreed I could share my response here, with some edits.

The question:

“Like everyone else, I am losing money in my RRSPs. In my mutual funds, I’ve lost a good chunk. But when I talked to the guy at the bank, he said to keep it in and wait. I asked him how much do I stand to lose and he said, theoretically, all of it, but it’s invested in sound companies, so I should wait it out. Do you think he’s giving me the correct advice?”

My response:

The advice is generally sound. Selling when prices are low is the opposite of what one generally ought to do. In fact, there is an entire field called “behavioural finance” or “behavioural economics” which studies the mistakes people make when it comes to money.

For instance, let’s say prices at the supermarket on canned goods were 50% off. You’d be loading up! Whereas, if prices were double what they were normally, you’d pass. Unfortunately, people tend to look at investments the other way around, and do the buying when they ought to be selling, and do the selling when they ought to be buying.

You may be interested in reading more about behavioural economics. One book I enjoyed is Why Smart People Make Big Money Mistakes and How to Correct Them. It’s a very approachable book, and the advice is practical and will save you money and headaches. Note: The book isn’t specific to investing, but it highlights how people often make the wrong choices when it comes to money. It relates to psychology.

Also, it’s important I clarify one thing: I wrote “generally sound” above as there are obviously exceptions to the advice of staying the course that depend on context. For instance, it is not considered prudent to have money invested in the stock market if the money is needed during the next five years. So, if you’re referring to short term money needed for a specific purpose soon, then getting out is not a bad idea. A better place for shorter term funds may be a bank account or a term deposit.

However, if the money is truly invested for the long term, then staying the course is a good approach, and investing more at these prices is also attractive.

But, I’m not a fan of most mutual funds, and those offered by banks in particular, due to their high fees. Do try and ensure your money is invested in a diversified portfolio of low-cost index funds. My favorite investing approach is described in The Four Pillars of Investing. I often mention The Four Pillars when people ask me about their investments. It’s fantastic. By the way, one of the Four Pillars of Investing is psychology.


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