***** I am not a financial advisor. These are my opinions.*****
Last week I talked about why I thought every young person should have their finances in order or at least on the path to be in order by the time they are 30 to buy a home. I briefly mentioned that Canadian banks are somewhat more stable and have better reputation globally then their American counterparts. Today, I will talk about why I think that is as well as a brief guide into how you can evaluate a bank's offerings.
First off, what regulates Canadian and American banks?
In Canada we have the Office of the Superintendent of Financial Institutions. The long and the short of it is that the COSFI checks Canadian banks and other financial institutions against federal regulations while keeping in context with the Financial Stability Board, the Basel Committee on Banking Supervision, and the International Association of Insurance Supervisors (all of which are international agencies). The COSFI has a very positive reputation with these external parties, which keeps the COSFI (as a supervisory role) in check. This is an extremely positive thing!
In the United States the Office of the Comptroller of the Currency is the institution that checks some financial institutions. I will say though, when doing a quick Google search, I had to do a secondary search to find this information, unlike the COSFI who directly came up in my initial search. The OCC does NOT regulate all the financial institutions in the United States. This I found very interesting because unlike the Canada government, the United States government has limited control over their public's access to financial institutions. For instance, Credit Unions are regulated through the National Credit Union Administration; State-Charted Banks through the Federal Deposit Insurance Corporation and the Federal Reserve Board AND state banking regulations. This seems very top heavy and even though multiple regulatory boards sometimes mean better outcome for consumers, having regulatory bodies that differ from one financial institution to another is a bit unstable.
One of the biggest reason why having one regulator for all financial institutions is in time of crisis or demanded market shift, as seen during the 2016 up-selling scandal in Canada. Essentially TD, one of Canada's biggest banks, got caught in rather grey sales practices. So the COSFI swooped in and took notice, they are not only checked TD's sales practices but also checked that of all financial institutions. In Canada, during these times of whole market shift having one regulating body makes the change relatively easy. As I mentioned earlier, the United States has many regulating bodies that govern market shift.
Secondly, in Canada we do not have Provincial or even City banks like that are found throughout the United States.
For example I was born on Martha's Vineyard, Massachusetts, where currently there are roughly 11 different banks (I may have miscounted because there are so many!), with a resident population of 15,000 that is insane! How on earth can just over 1000 people per bank keep it stable?! I do not have the answer but it certainly scares the daylights out of me! In Canada we do not have as many regional, provincial or city banks with the exception of the regional credit unions. This creates a very stable atmosphere for consumers to handle their money in. This does however make competition a little more loose when trying to get the best bang for your buck.
How do I choose a financial institution?
There are a couple of things that you should look at:
1. Your current financial needs. If you are a student, what bank offers the best account privileges in their student packages. From personal experience, going over my transaction allotments really hurt!
2. What kind of fees do they charge for basic checking accounts? This can be a tricky one that you may have to actually ask a teller about, sometimes banks have hidden fees that are not advertised on their website or pamphlets.
3. What are the interest rates like on saving accounts? The old adage still rings true "The rich get richer." Banks will offer higher interest rates to people with higher dollar valued savings accounts, and those who keep their money in the accounts longest and add try to grow it. This is because banks use your money to invest and run their own financial flows to stay stable and to make more money for their investors.
4. How accessible is the bak? I literally mean how many fiscal branches in your area are there, if it is to hard to get to maybe choose a different bank. It is always a good idea to make yourself known to your local branch, customer service works both ways. If you are friendly and a regular user of any establishment you are guaranteed to get better service then the people who are rude and try to get out as quickly as possible.
5. What are the current interest rates for borrowing money? This is an important one, if you are looking to borrow any money for any reason and are up to date with your banks rates then you will not be misguided by the lender. Knowing the interest rate of other banks is even better, banks want to loan you money at the highest rate they can without scaring you away to another bank. If you use your knowledge of other banks against your bank, you can make quick decisions and maybe get a better rate.
6. What is this instutitions past like? I mean how has it fared in the last 5 years compared to other banks and how has it fared during economic crisis? If we look at the 2008 resession many banks were put into crisis mode and had to borrow from the Canadian Government. Only a select few financial insitutions remained stable and calm during these times. Don't just look at current offerings, also look at the history of the financial institution.
What I would like to leave you with is this, if you are not sure about your current financial institution shop around. Compare our financial institutions to those in the States, we have less selection but we have a much more stable economic environment for consumers. Think about what your bank is telling you and be aware of other offerings in the market. Do not be afraid to shop around and use other information from other banks at your institution, stand up for yourself.
***** I am not a financial advisor. These are my opinions.*****
Next week I will tie the series together and hammer down what the heck they have to do with conscious consumerism and living a more sustainable life. Trust me, they are connected!
Thank you for reading, and don't forget to SUBSCRIBE!