I love ING because I love money

I’ve been banking with ING for nearly 3 years now. It’s a romance that I think has the strength to last a lifetime. Why? Because it has all the strengths of any successful relationship:

mutual love & respect, great communication, room to grow, and no qualms about money.

I signed up to be an Orange Ambassador on ING’s Facebook page a few months ago. The week I got back from my work trip, I found a pleasant surprise in my mailbox: free swag! Not only am I an Orange Ambassador, but I’m one with a nifty orange travel mug and a lunch bag. I love these things because like any smart saver, I know that bringing in your own mug to Starbucks gets you a discount on your beverage and packing your lunch for work is way better for your wallet than buying from the food court every day.

Now I think I even have a bag of coffee in the mail, thanks to a kind exchange with @SuperStarSaver.

But truthfully I sung the praises of ING long before they started giving me free stuff. This is because long before ING sent me tools for my lunch kit, they gave me something I like even more: free money.

When I first opened a savings account with ING, the interest rate was 4% (I miss those days!). Even now that the markets have taken a beating and my interest rate is only 1.5%, it’s still way higher than what traditional banks offer. After saving up $1000 in it, I took my first baby steps into investing and bought some StreetSaver mutual funds and have been contributing monthly ever since. Not long after opening these accounts, the Tax-Free Savings Account was introduced in Canada, so I also opened one of those with ING. As faithful readers know, this is where I keep my Emergency Fund (which even sporadic readers know is the savings I insist upon the most), my DayZero Fund. It’s also where I save for vacations and put a few dollars in towards the future purchase of a car or a downpayment on a home. Last year, I even started an RRSP with ING. My future is in this banks hands! (because I trust them with it). A few GICs along the way, and I’ve basically taken advantage of every service ING offers except a mortgage — and frankly, that’s just a matter of time!

How much has ING paid me in interest and dividends on my investments? Over $300. I’ve also earned $100 for referring others. Which, by the way brings me to an important point: if you would like to bank with ING, use my referral code when you open an account with at least $100, and we’ll both get $25…

How much has my other bank paid me? Maybe fifteen cents.

When ING introduced the THRiVE checking account, I naturally signed up for that as well. And who wouldn’t? With no fees, interest earned on your balance, online bill pay, and your first set of cheques free, I’m surprised anyone with grade school math abilities can say no. Furthermore, an agreement with HSBC means I can withdraw and deposit money from my ING accounts at local HSBC branches and lucky me, there’s one very close to my house!

ING, I love you — and I never expected to say that about a bank.

Fees? Noooooo!

Argghhhhh!

FML!

I have a student account which means I’m entitled to no-fee banking — within limitations. One of those limitations is on how many debit transactions I can do per month. Since I very responsibly tucked my credit cards away tow wait out my spender bender, I’ve been using debit exclusively for the month of March. This is awesome because I can’t spend more money than I actually have in my bank account. It is not awesome when I spend so much I get charged fees =(

I was pretty choked. I mean, I could have gotten a latte AND a pastry from a coffee shop for that $7! In retaliation, I went right ahead an opened a no-fee Thrive chequing account with ING. I love ING very much, as I’ve told you before, so I’m excited to make them my main bank with NO LIMITS ON DEBIT TRANSACTIONS!

I just need to set up direct deposit for my job and some other sources, switch over my automatic bill pays, and then I’ll be good to close my TD chequing account for good when I get back from Paris. I’ve banked with TD ever since I’ve banked, but there’s no way I’m shelling out $12/mo for a normal non-student bank account (which is what I have to get now that I up and quit grad school). The fee is waived if you maintain a balance of $5000, but I really feel there’s better places for such a sum than a chequing account! I will be keeping my line of credit with TD and may or may not close my TD visa account, I’m going to think about it.

How much do you pay for banking? Do you accept fees as a necessary evil or do you do all you can to avoid them?

The merits of a simple savings account

When I tweeted that ING raised their interest rates on some of their basic savings accounts for the New Year, some of my friends balked at the meager returns. I was a bit surprised — maybe just because I was kind of excited about the gain and here my friends were raining on my parade. It’s been brought to my attention by the “that’s it??” responses that maybe one of the biggest reason my peers don’t make use of savings accounts is they don’t actually know how useful they can be.

About the rates…
A good savings account will pay a percent interest that mirrors inflation. It is important to understand that interest rates are low right now because the market is down. In the past, they were much higher because the financial world wasn’t reeling from a near-fatal blow like it is now. As the market recovers, rates will continue to increase. High-yield savings accounts essentially return zero when compared to inflation, which is why they are NOT for investing — but this is also why it’s important to seek out the 2% from a bank like ING instead of the 0.2% from a bank like TD. It’s better to come out on par rather than at a loss.

If you start an account with ING with over $100 and use my referral key, you’ll get a $25 bonus. Hello? That’s a 25% return on your initial investment ;)

Savings ISN’T about making money!
It’s about having money, particularly for goals. If you want to go on vacation, you don’t save for it by buying stocks. Why? First, you want the money there when vacation time comes which isn’t always guaranteed by riskier higher return investments, and secondly, investing is expensive but saving is not. It’s not worth it (or really even very feasible, though not entirely impossible so don’t harp on me here) to buy $50 of individual stock per month, but in a savings account, that’s an ok contribution.

A little goes a long way…
Even if rates are low, they can add up. Every time my vacation fund gets interest paid out to it I think, “there’s a coffee I don’t have to buy on my trip!”. And it does add up. At first it’s just pennies, then it’s a dollar and a bit for a regular coffee, but then it gets to be enough to buy a latte, and finally you’re at the point where you can treat yourself and a friend to lattes & croissants, all courtesy of that pitiful rate of return. It’s not a lot, but for god sakes, it’s free money! Why would you say no to free money? (Free coffee!!)

A savings account is an excellent way to accumulate money for the purpose of investing.
Some investment vehicles have minimum buy-ins that can be anywhere from a few hundred to thousands or even tens of thousands of dollars. GICs? Usually start at a minimum $500. Stocks? Well if you want a chunk of Apple, it’s over $300 apiece. When I first bought mutual funds, I didn’t go in with $20 — I put $1000 down first. How did I accumulate $1000 to start investing? In a savings account. Buying big, long-term investments with a small amount and/or for the short term is a bad idea, so accumulating a sum with a few zeroes behind it is an absolute necessity if you want to use your money to make more money.

For long-term savings, you need (or should try) to make money. For short-term goals, you merely need to have money. Savings accounts are the best place to keep your money for purchases you’re planning to make within 0 to 2 years. This means things like buying a car, paying tuition, going on vacation, buying a computer, etc. You don’t need to get a return on this money, you just need it to be available in 24 months or less to buy something you want. Savings accounts are also the best place to keep your emergency fund, because you need that money to be readily accessible and not have any penalties for withdrawals.

If you’re saving up for long-range goals (more than 2 years from now), like buying a home or saving for retirement, then GICs, mutual funds, stocks, bonds, and other investment vehicles are better suited to your needs. There you can get a larger return on your money and temper out the consequences — such as fees or poor market performance — of withdrawing too soon. In the meantime, don’t neglect the basic savings account, it has a lot to offer you! And geez, get excited about 2%.

I am paid $26/hr to take the bus

This isn’t a joke, I make roughly $26/hr taking public transit. I’m not paid by the city or ETS or any green organization — I’m paid by myself, with the money I’m not spending on a car.

I take the bus and/or the train every single day. Assuming a 20 minute commute, there & back, that’s about 40 minutes, 7 days per week. This works out to roughly 20 hours per month.

Now, to do this calculation we have to consider the alternative: car ownership. Very, very, very few people recognize how abhorrently expensive owning a vehicle actually is. They will purposely deceive themselves, make wild justifications, omit essential calculations, all in the name of keeping their car. Oh I know, it’s so convenient and you need it because you live out of town or whatever, but some vehicle owners are just kidding themselves.

Here’s a fun scenario to prove my point!

First, let’s pretend I own a modest used Mini Cooper (my secret obsession) that cost $15,000. I put $1000 down when I bought it, and am now paying down the remaining $14,000 on a 5 year loan at 5.50%. This works out to $267 per month. Totally affordable, right?
(sidenote: this will cost $2,047 in interest over the life time of the loan, bringing my total car ownership up to $17,000 after it has had 5 years to depreciate in value. AWESOME.)

Let’s say I’m pretty good about driving and only spend $100 each month on gas.
Insurance is also around $100 each month, because I have no accident history.
For maintenance (license & registration, car washes, oil changes, tune ups, tire changes & rotations, any insurance deductibles in case of accident, repairs, etc.) I spend about $600 a year, or what works out to $50 each month.

I’m now spending $517 each month to own my car. That’s the same $517 I would be saving by forgoing car ownership and using public transit. That amount divided by the approximate 20hrs I spend on transit each month works out $26/hr. Ok, I’m cutting one corner here because my bus pass is paid by my tuition, which is paid by my graduate student stipend, so it’s essentially “free”, but if I had to buy one for $86 each month, my net would only work out to about $22/hr. A little bit of a pay cut, but nothing I can’t live with.

I know, I know. Your car payments are smaller, you spend less on gas, and the price is worth the convenience. That’s not necessarily the point: even if your car is costing you half of what I presented above, you’re still probably paying too much.

The real kicker is when you pretend you went without a vehicle, and instead invested that initial $1000 down-payment, plus the $517 each month for 5 years. Even if you did so in the most basic savings account that are boasting an interest rate of only 1.5%, you would yield — wait for it — over $33,000. That’s 2x the value of the car in cold hard cash, even though you invested the exact same amount of money.

If you want to play around with your own car loan calculations, try TD’s auto-loans calculator. You can adjust the loan amount, interest rate and length of term. It will give you your monthly payment and the total interest over the lifetime of the loan.

To determine how much you can save by just-saying-no to car payments, insurance, gas and maintenance, try out ING’s savings calculators. Here you can put in an initial investment, determine a monthly, weekly or biweekly contribution, and it will tell you how much you’ll have in the end.

What I want to know is, why is it normal to take out a 5 year car loan, but abnormal to save for 5 years to buy a car? Buying a car with cash would allow you not only to get a nicer car, but you would significantly reduce the monthly cost of car ownership plus avoid wasting money on the interest of a loan.

Join me on the bus!

Starting Simple: Save Your Money

I think my first entry in this blog should be on the simplest and most fundamental rule of financial health: save your money.

Its hard to convince students that long-term saving is the best course of action. Why? They have no money, especially after tuition is paid. Now, why your bank account should never approach $0 is an entry all in itself, so I’ll leave that for later. For now, I want to first advocate why you need to put cash away every month and secondly, how to do it.

It sucks to have no money. It really does. Few things are more disheartening than trying to get a double-double from Tim Horton’s and having your debit card come up “insufficient funds”.

Just kidding, we all know Timmy’s in CAB doesn’t take debit.

But I digress. The reason it sucks to have no money is because you always need money. You need it for rent, food, and textbooks. You need it for beer to get over that bad exam. You need it for that upcoming ski trip with your academic club. But most of all, you need money for emergencies.

After emergencies, you need to have money so your debt doesn’t define you. Don’t let the amount you owe the bank, Visa, or the government be the only number of your net worth. Even if its unlikely you’ll amass even a fraction of your student loan balance, make an effort to put away a few dollars if only to keep that debt from being so daunting. You can graduate owing $24,000, or you can graduate owing $24,000 with $5,000 in the bank. Sure, it’s a small amount, but that petty sum can be a nice cushion if a job doesn’t arrive on your doorstep immediately after graduation, or if you need something to draw on to get you to an out-of-province interview or buy a car to commute to your new career.

But how are you going to amass $5,000 by graduation?

It’s easier than you think. In fact, if you start in your first year of your Bachelors degree, you can do it on as little as $100 a month (or even less, if you’re smart about where you put that money). So when you make your budget with your summer savings and/or scholarship and/or student loan and/or part-time job income, make a category for savings, and commit to putting $100 (or more, if you can) into a high-interest savings account (I’m partial to ING — if you want a free $25 for signing up, ask me for my Orange Key and I’ll refer you!).

What if you can’t save $100 every month? Doesn’t matter. Save $75 instead. Heck, save $25 if that’s all you can manage. At the end of the day, any amount is more than nothing – especially after 4 years!

I didn’t start putting money away each month until my third year of university, so I missed out on some time, but I still managed to grow my savings no a nice lump sum by graduation. Additionally, the habit has provided me with 2 vacations that I paid for with cash, a healthy emergency fund that’s come in handy in times of need, and the beginnings of an investment portfolio.

So forgo a few beers a month and do your future graduated self a favor by putting away as much as you comfortably can into a high-interest savings account. Maybe you won’t be rich as a student, but you definitely shouldn’t be broke.