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Paying bills from a savings account
August 21, 2019
12:35 pm
Peter
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EQ Bank does not have a chequing account, but one of the touted appeals of their "Savings Plus Account" is that it's essentially a chequing and a savings account in one.

I have found the ability to pay bills from what is called a savings account to be convenient. However, at my other financial institutions, it's just a few more clicks for me to move money from the savings account to the chequing account, and then pay my bills from the chequing account. That way I keep the smallest amount of money possible in the chequing account (with a negligible interest rate), and maximize the money I keep in the savings account (with the decent interest rate). This is really not a problem for me, although I have to admit that a couple of times over the past decade, I forgot that I'd written a cheque (because the person or daycare provider for example didn't deposit it in a timely manner) and was hit with an NSF charge. Thus maybe it is a problem?

On this forum, I occasionally see questions from people regarding fees and transaction limits at financial institutions, specifically around chequing-like features from savings accounts. And some people don't immediately think to transfer money from savings to chequing, which is (almost?) always free and unlimited within the same financial institution.

So, the questions I have are:

  • How much of an appeal is it for people to be able to pay bills from a savings account?
  • Why do we even have separate chequing and savings accounts? Because banks can get away with it?
August 21, 2019
12:48 pm
Doug
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They're good questions, Peter, but in my view, EQ Bank's Savings Plus Account falls considerably short for several key reasons:

- It doesn't have a "access to deposited funds" or "cashback" limits whereby a portion of your non-cash deposits are instantly available for use;
- It doesn't have a debit card for cash deposits at ATMs (less critical for Interac Direct Payment as most people use their credit cards for purchases);
- Transaction narrative information is non-existent to woefully lacking. It has a pretty UI, but the whole banking experience has the feel of being hobbled together really quickly, without implementing such niceties but important ones nonetheless; and,
- Its e-Statements are represented in reverse order (newest at the opening), which is completely off-side with industry standards.

Additionally, though less critically, you can't write cheques on the account. This is less critical with free and unlimited Interac e-Transfers, but again, all that shows up is "Interac e-Transfer credit" on your e-Statement, so you can't say who it was from or who you sent it to - not helpful at all, in my view. 🙁

For those reasons, it's why I won't be using an all-in-one chequing/savings account.

Cheers,
Doug

August 21, 2019
1:50 pm
Alexandre
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From recent questionnaire EQ bank sent to some of its clients, including me, it is clear they plan to introduce debit card.
That would be quite nice addition to their "Savings Plus" account.

I also wondered why would other banks keep separate checking and savings accounts.

So, looked at mine and this is what I see: for different reasons I keep almost $1,000 combined in checking accounts I have with different banks.
Some of that money is to be able to pay with debit card at a small store I frequent that doesn't like credit cards ("we will charge $2 fee for every credit card transaction under $10"), some for cases when I would like to withdraw $20-$40 cash on a whim, some for direct debit, and so on.

I could have trimmed that amount to perhaps $100 with added inconvenience of remembering which checking accounts to top-up every time I leave my house, and when direct debit transactions hit my accounts, but I don't want that inconvenience.

So, how much a bank makes by keeping separate checking and savings? A simple math: the difference between interest on both, multiplied by how much money is kept on average in checking account, multiplied by number of bank clients.
My guess would be: enough for a large bank to have a convincing argument for not consolidating checking and savings accounts.

August 21, 2019
2:52 pm
Londonguy
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Peter said
So, the questions I have are:

  • How much of an appeal is it for people to be able to pay bills from a savings account?

It can be handy, but as you said, only to the extent of avoiding a few extra clicks. As an example, the ManuLife Advantage savings account allows you to pay bills directly from that account, eliminating the extra step and the need for a separate chequing account. I expect the single account model to become widely adopted.

  • Why do we even have separate chequing and savings accounts? Because banks can get away with it?
  •   

    I think it's a legacy thing from the pre-internet era before people started routinely banking from home. Pretending that your savings account is more sacrosanct than your chequing account (and therefore should somehow not be routinely accessed for fear that you'll blow it on something silly) is an 'old school' financial practice that needs to die out.

    August 21, 2019
    5:16 pm
    Norman1
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    The separate chequing and savings accounts is an old banking trick. I wrote about it a while back.

    It is an effective trick for the banks. Equitable Bank CEO Andrew Moor shared, in his January 2016 Bloomberg interview, that about 70% of Canadians don't like to manage the money between their chequing and savings accounts. They end up leaving the money in their chequing account.

    August 21, 2019
    6:17 pm
    hwyc
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    Peter said
    ... Why do we even have separate chequing and savings accounts? ...

    I only put minimal money in Chequing & ~100% in Savings. The ideal for me would be that the bank only allow deposit/withdraw to the Savings via the Chequing. That way, the Chequing also serves as a firewall to the Savings. (Call me paranoid ... way too many automations these days)

    August 21, 2019
    9:52 pm
    Loonie
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    I find the responsibility of transferring funds from savings to chequing in order to meet obligations such as bill payments to be a huge nuisance and inconvenience. It's something I prefer to live without. And, as Peter says, when this is the system you use, you run the risk of forgetting something.

    Thus, I make a generous estimate near the end of each month as to what my chequing account will require the following month, then I make one monthly deposit to chequing and forget about it. All bill payments are on pre-authorized debit (or, where permitted, credit card), including credit card bill payments. The chequing account is a no-fee account, but there is loss of interest, which is equivalent to a fee. For me, it's worth the loss of interest to have the convenience and to know that I'm covered - given the choices. This is also the account through which we make cash withdrawals and spouse makes the occasional debit payment, so I only have to keep track of one "active" chequing account.

    If I wanted to be more frugal, I could do as Peter suggests, moving only the amount required to meet a particular bill into chequing immediately before paying it, and doing this for every bill. But I'm not. This is the way I've always done it and I'm not likely to change now that I'm in my 70s. If I did, I'd probably make a mistake and regret it! At this age, I have a great fondness for systems I can't mess up!

    HOWEVER, it would be better if this could all be accommodated through the savings account. They should pay interest on all funds equally. These are deposit accounts, after all, not GICs.

    I figure it's my choice to take the convenient route which is a bit more expensive. I'd rather do that, given the choices, because I don't like having to worry about it - or paying NSF fees!

    One variation would be for us to ensure that sufficient income sources were deposited to the chequing account monthly by pre-authorized deposit, enough to cover living expenses. We are moving towards this, and will probably do it in due course as it's the best answer for failing memories, unexpected illness, hospitalizations and periods of travel. Then there should be nothing to do except make arrangements to cover extraordinary expenses and perhaps withdraw any accumulated excess once a year or so. It can also help to have a healthy overdraft protection.

    I think we have a long way to go before there is a truly Senior-friendly account, but the needed innovations are unlikely to happen.

    August 22, 2019
    10:16 am
    AltaRed
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    +1 to Loonie. My pension payments go automatically to (big bank) no fee chequing each month, and once a month I sweep investment income to chequing. That covers all normal household costs. Only when there are major lump sum expenses do I need to make arrangements to transfer more funds and/or tap into an investment holding.

    Simply cannot be bothered to micro manage first small amounts of taxable interest from a savings account.

    August 22, 2019
    2:28 pm
    Briguy
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    Loonie said
    I find the responsibility of transferring funds from savings to chequing in order to meet obligations such as bill payments to be a huge nuisance and inconvenience. It's something I prefer to live without. And, as Peter says, when this is the system you use, you run the risk of forgetting something.

    Thus, I make a generous estimate near the end of each month as to what my chequing account will require the following month, then I make one monthly deposit to chequing and forget about it. All bill payments are on pre-authorized debit, including credit cards. The chequing account is a no-fee account, but there is loss of interest, which is equivalent to a fee. For me, it's worth the loss of interest to have the convenience and to know that I'm covered - given the choices. This is also the account through which we make cash withdrawals and spouse makes the occasional debit payment, so I only have to keep track of one "active" chequing account.

    If I wanted to be more frugal, I could do as Peter suggests, moving only the amount required to meet a particular bill into chequing immediately before paying it, and doing this for every bill. But I'm not. This is the way I've always done it and I'm not likely to change now that I'm in my 70s. If I did, I'd probably make a mistake and regret it! At this age, I have a great fondness for systems I can't mess up!

    HOWEVER, it would be better if this could all be accommodated through the savings account. They should pay interest on all funds equally. These are deposit accounts, after all, not GICs.

    I figure it's my choice to take the convenient route which is a bit more expensive. I'd rather do that, given the choices, because I don't like having to worry about it - or paying NSF fees!

    One variation would be for us to ensure that sufficient income sources were deposited to the chequing account monthly by pre-authorized deposit, enough to cover living expenses. We are moving towards this, and will probably do it in due course as it's the best answer for failing memories, unexpected illness, hospitalizations and periods of travel. Then there should be nothing to do except make arrangements to cover extraordinary expenses and perhaps withdraw any accumulated excess once a year or so. It can also help to have a healthy overdraft protection.

    I think we have a long way to go before there is a truly Senior-friendly account, but the needed innovations are unlikely to happen.  

    Chequing accounts at Alterna can be set up with a "coverdraft" which backs up your chequing account from your savings account. It's free, but you have to phone Alterna to set it up.

    Chequing accounts at Motus and Meridian can be set up with minimum and maximum amounts and each night there is a sweep to move money in or out of chequings or savings account to achieve this range in your chequing account.

    August 22, 2019
    3:38 pm
    Briguy
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    Doug said
    They're good questions, Peter, but in my view, EQ Bank's Savings Plus Account falls considerably short for several key reasons:

    - It doesn't have a "access to deposited funds" or "cashback" limits whereby a portion of your non-cash deposits are instantly available for use;
    - It doesn't have a debit card for cash deposits at ATMs (less critical for Interac Direct Payment as most people use their credit cards for purchases);
    - Transaction narrative information is non-existent to woefully lacking. It has a pretty UI, but the whole banking experience has the feel of being hobbled together really quickly, without implementing such niceties but important ones nonetheless; and,
    - Its e-Statements are represented in reverse order (newest at the opening), which is completely off-side with industry standards.

    Additionally, though less critically, you can't write cheques on the account. This is less critical with free and unlimited Interac e-Transfers, but again, all that shows up is "Interac e-Transfer credit" on your e-Statement, so you can't say who it was from or who you sent it to - not helpful at all, in my view. 🙁

    For those reasons, it's why I won't be using an all-in-one chequing/savings account.

    Cheers,
    Doug  

    @Doug I'm surprised you didn't mention Alterna Bank and their coverdraft between chequing and savings account as I mentioned in post above . 🙂

    August 22, 2019
    7:26 pm
    Doug
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    Note by admin: Alterna Bank has clarified that their "coverdraft" feature is completely automated by the system

    @Briguy, I didn't mention Alterna Bank's coverdraft feature because that's not really a technological feature. It's actually just something every other FI offers called "advance posting" whereby the FI will pay an exception item where no overdraft is in place, or the withdrawal exceeds the authorized limit, except that they normally charge a $5.00 per instance fee. It's nice of Alterna Bank to provide this for free (i.e., without charge), but it's still just a manual posting that they have to do to transfer funds from a savings account. As well, I hadn't really thought about it.

    I could actually see Alterna Bank eliminating this feature as they grow and instead implementing a more automated "sweep" feature like Motus Bank/Meridian Credit Union and Motive Financial have (I think you said Motive Financial has such a feature?). As they grow, their advance posting reports will become burdensome to making these manual transfers so they'll probably have to institute a fee. That said, they're very cognizant of being customer centric, which is why I see them working on an automatic "sweep"-type feature that those mentioned and Manulife Bank have.

    Cheers,
    Doug

    August 22, 2019
    7:44 pm
    Briguy
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    Doug said
    @Briguy, I didn't mention Alterna Bank's coverdraft feature because that's not really a technological feature. It's actually just something every other FI offers called "advance posting" whereby the FI will pay an exception item where no overdraft is in place, or the withdrawal exceeds the authorized limit, except that they normally charge a $5.00 per instance fee. It's nice of Alterna Bank to provide this for free (i.e., without charge), but it's still just a manual posting that they have to do to transfer funds from a savings account. As well, I hadn't really thought about it.

    I could actually see Alterna Bank eliminating this feature as they grow and instead implementing a more automated "sweep" feature like Motus Bank/Meridian Credit Union and Motive Financial have (I think you said Motive Financial has such a feature?). As they grow, their advance posting reports will become burdensome to making these manual transfers so they'll probably have to institute a fee. That said, they're very cognizant of being customer centric, which is why I see them working on an automatic "sweep"-type feature that those mentioned and Manulife Bank have.

    Cheers,
    Doug  

    I don't think Motive Financial does. They used to offer an overdraft feature in their chequing account that allowed you to have a cheque cashed or automatic withdrawal taken out above the amount in the account with no charge as long as you transferred funds in by the end of the day. I wasn't able to get an overdraft when I opened up the Cha Ching chequing but I believe it is grandfathered in for account owners from the past.

    August 22, 2019
    8:30 pm
    Loonie
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    I wasn't aware of the overdraft alternative with Alterna. Thanks, Briguy. Might use that, especially since Alterna is where I currently "store" extra cash that is to be transferred to the chequing account in question at BigBank. Even so, I don't think I would want to rely on this all the time; I would feel I was abusing the system.
    Motusbank is also a reasonable choice for conventional payments because their chequing account offers .50%

    August 23, 2019
    4:04 am
    Briguy
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    Loonie said
    I wasn't aware of the overdraft alternative with Alterna. Thanks, Briguy. Might use that, especially since Alterna is where I currently "store" extra cash that is to be transferred to the chequing account in question at BigBank. Even so, I don't think I would want to rely on this all the time; I would feel I was abusing the system.
    Motusbank is also a reasonable choice for conventional payments because their chequing account offers .50%  

    Just call them and ask them to activate the "coverdraft" feature on your chequing account, which they do at no charge.

    August 23, 2019
    9:01 am
    moneyhelp
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    I haven't read this entire thread, but I just wanted to share, I've never owned a Chequing account. I've only done my banking with savings account my entire life.

    To be honest, I still don't understand the point behind Chequing accounts and their purpose. Most will say, well savings is for saving for a rainy day, and Chequing is for day to day banking (ie. paying bills, mortgage, etc.) except that I've done that always and only through my savings accounts; as I mentioned, I've NEVER owned a Chequing account and don't see the purpose.

    I think people just believe that you need a Chequing account for day to day banking because that's the way it is...nope.

    August 23, 2019
    9:02 am
    Doug
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    Note by admin: Alterna Bank has clarified that their "coverdraft" feature is completely automated by the system

    Briguy said

    Just call them and ask them to activate the "coverdraft" feature on your chequing account, which they do at no charge.  

    It's important that we distinguish "coverdraft" isn't so much a feature as it is a manual service they provide. Virtually every other institution offers such a service, but what is unique is that Alterna Bank is doing is, at least for now, they're not charging a per instance fee (typically $5.00). It still requires a representative to manually review daily reports and transfer from your savings to your chequing. You shouldn't be relying on this as though it's an automated "sweep"-type feature. As they scale up and gain more customers, it will be too costly for them to manually action so many "coverdrafts" on accounts (called "advance postings" at HSBC and elsewhere), so I do expect them to ultimately eliminate and/or add a fee for this service and instead replace it with a "sweep" feature. Lots of banks and CUs are looking at such "sweep" features, so it makes sense for Alterna Bank to offer such a feature.

    Cheers,
    Doug

    August 23, 2019
    5:55 pm
    Briguy
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    moneyhelp said
    I haven't read this entire thread, but I just wanted to share, I've never owned a Chequing account. I've only done my banking with savings account my entire life.

    To be honest, I still don't understand the point behind Chequing accounts and their purpose. Most will say, well savings is for saving for a rainy day, and Chequing is for day to day banking (ie. paying bills, mortgage, etc.) except that I've done that always and only through my savings accounts; as I mentioned, I've NEVER owned a Chequing account and don't see the purpose.

    I think people just believe that you need a Chequing account for day to day banking because that's the way it is...nope.  

    It's only recently that savings accounts have become available with unlimited bill pay, preauthorized debit, interac transfers, external transfers etc. Before that you needed a chequing account to get all those features, even if you didn't need to actually send a cheque. I'd still rather give physical cheques to a landlord or any company rather than allow money to be taken out of my account automatically, assuming they won't automatically bill my credit card or allow me to pay online at my bank each month. Once you issue a preauthorized debit it's impossible to have the bank take it away. @Doug can confirm this. The best Scotiabank would do for me when an alarm company continued taking monthly fees out of my account was to offer me a " stop payment " that I would have had to pay for every 6 months indefinitely. Luckily the alarm company ( Grand Alarms ) stopped taking the money out after a few months. The only reason I allowed that preauthorized debit was that it was done through the builder.

    August 23, 2019
    8:33 pm
    moneyhelp
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    Briguy said

    It's only recently that savings accounts have become available with unlimited bill pay, preauthorized debit, interac transfers, external transfers etc. Before that you needed a chequing account to get all those features, even if you didn't need to actually send a cheque. I'd still rather give physical cheques to a landlord or any company rather than allow money to be taken out of my account automatically, assuming they won't automatically bill my credit card or allow me to pay online at my bank each month. Once you issue a preauthorized debit it's impossible to have the bank take it away. @Doug can confirm this. The best Scotiabank would do for me when an alarm company continued taking monthly fees out of my account was to offer me a " stop payment " that I would have had to pay for every 6 months indefinitely. Luckily the alarm company ( Grand Alarms ) stopped taking the money out after a few months. The only reason I allowed that preauthorized debit was that it was done through the builder.  

    That sounds about right, because I opened my first savings account at 11 and I'm in my early 40s now, so although I never had a chequing account, I didn't have internet way back then to do EFT, or online bill payments or PAD, etc.

    One question. The stop payment, you have to pay for it? Is that normal? I'm just thinking, if I wanted to cancel my GoodLife membership one day, and they keep billing me (because set up PAD) and I contact my bank (RBC), will they charge me to stop payments? I mean isn't that a normal service they provide their customers? I think its BS if they charge you? and for EVERY 6 months!!? What the f?

    August 23, 2019
    9:51 pm
    Loonie
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    I find the Scotia policy as outlined alarming. I've never run into anything like that but have never had an account at Scotia other than an RSP and LIRA once upon a time. I hope you were misinformed. It doesn't make any sense. Once you have stopped it, it should be stopped, and there should be no need to stop it again in six months. If necessary, I would appeal to the bank's ombudsperson.
    You d should be able to "un"-authorized automatic payments just as easily as you set them up.

    the only time I had a problem with this was when an insurance company continued to take payments from our bank account after the policy had expired. This was remedied as soon as I noticed, and the insurance company refunded the extra premiums. You do have to keep an eye on them though. The insurance company (RBC, I think) would have gone on deducting the premium indefintiely even though they knew better.

    August 23, 2019
    10:16 pm
    Doug
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    Briguy said

    It's only recently that savings accounts have become available with unlimited bill pay, preauthorized debit, interac transfers, external transfers etc. Before that you needed a chequing account to get all those features, even if you didn't need to actually send a cheque. I'd still rather give physical cheques to a landlord or any company rather than allow money to be taken out of my account automatically, assuming they won't automatically bill my credit card or allow me to pay online at my bank each month. Once you issue a preauthorized debit it's impossible to have the bank take it away. @Doug can confirm this. The best Scotiabank would do for me when an alarm company continued taking monthly fees out of my account was to offer me a " stop payment " that I would have had to pay for every 6 months indefinitely. Luckily the alarm company ( Grand Alarms ) stopped taking the money out after a few months. The only reason I allowed that preauthorized debit was that it was done through the builder.  

    Good summary, @Briguy, though I'd argue paying rent by Interac e-Transfer would be an equally good way of paying besides by cheque. Pre-authorized debits can be returned up to 90 days from the transaction posting date, provided they're not a funds transfer pre-authorized debit. Technically, you're supposed to declare that the payment is one of several reason codes, but the banks don't - and aren't obligated to - verify whether that reason code is correct. Thus, you might end up with an angry bill payee, but you will get your money back within 2 business days. It's quite slick. 😉

    As for stop payments, these are iffy. Some banks, like Scotia, are better than others as they have a "stop all" payment type whereby they'll flag any pre-authorized debit for a given payee and any amount. Others, like HSBC and the credit unions, have poor systems that don't catch stop payments whereby the payee changes the amount. So, if you have no funds in your account, the bank or credit union will return as NSF. Once it's been returned NSF, they can't correct a returned payment. So, I would just recommend don't letting a payment go NSF. If you're not obligated to pay a given amount, let it go through and do a pre-authorized debit return form. (I loved doing these at HSBC because it was so slick! 😉 )

    Cheers,
    Doug

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