February 16, 2015 Newsletter

Bank Fees and also Canadian Demographics

As an investor, and an owner of bank shares, I am not usually opposed to the fees banks charge. However, some bank fees are beyond the pale.

Credit Card Interest Rates

TD Visa customers that miss the minimum payment date by more than 30 days face higher interest rates. The interest rate on cash advances rises to 28% and on purchases to 25%. The normal rate is 21%.

They are making things even more onerous as of March this year. Upon being more than 30 days late with the minimum payment, the higher rates will now remain in place until the customer makes the minimum bill payment on time for 12 months in a row. It used to be 2 months before the rate would drop back to 21%.

This will not likely affect me because I almost always pay the full balance by the due date although once in a while I can forget to pay on time but I don’t think I have ever missed by a full 30 days.

To me, this is a disgusting change that hurts the most vulnerable people. I am all for making a profit but is 21% not a high enough rate?

I called TD at 1-855-384-9348 and they answered right away and I politely asked that they pass along to management that I thought that this was quite disgusting. Obviously it’s not the fault of those who answer the phone.

This sort of thing does illustrate how banks can make big money on interest rates and fees. It’s not likely that anyone choosing to have a TD credit card would make their choice based on what happens to the interest rate if they miss the minimum payment by over 30 days.

There are certain bank charges that most people encounter infrequently and for which the bank can charge almost anything they please.

Foreign exchange fees on Credit cards

TD Visa tacks on an extra 2.5% to the exchange fee “rate established by VISA” for purchases in U.S. dollars. Based on my recent transaction it appears that VISA inc. was charging 0.9% above the wholesale rate.

It appears I paid a total of 3.4% extra on the exchange.

I paid 1.22882 for a January 13, 2015 transaction whereas the Bank of Canada indicates that the wholesale exchange rate on that date at noon was 1.1948. And the rate the previous day was 1.1930 and the next day was 1.1958.

You can check historic wholesale exchange rates as of noon on any date in the past ten years at this link:

Now, I think it is perfectly okay for the bank to make a profit on the transaction. But in this case TD Visa would already have charged a merchant fee of probably 2.0%. The currency exchange part of this transaction was entirely electronic.

A currency exchange window at the airport faces real costs and risks in terms of staff time, exchange rate fluctuations on their inventory of cash in various currencies, and perhaps even counterfeit currency risk.

It seems to me that TD VISA and VISA Inc. faced no additional risks with this electronic currency exchange. The risks of me not paying the credit card bill do not increase when I purchase something in U.S. dollars. With everything being electronic they probably face no risk of the currency rate changing against them and no counterfeit money risk.

Again, they deserve and are perfectly entitled to make a profit. But in a situation like this is it right that they can charge a 3.4% profit over and above their merchant fee?

They can get away with it because I don’t do enough traveling to justify having a U.S. dollar credit card.

It seems to me that this is a system ripe for disruption whereby new electronic payment options could come in and reduce such a fee by probably 90% and still make a profit.

Exchange Rate Fees in Investment Accounts

When I checked just now, TD Direct Investments will allow me to transfer Canadian dollars to U.S. dollars at a rate of $1.2631. This is from the Canadian RRSP account to the U.S. dollar portion of the same RRSP. If I then go in the other direction transferring U.S. dollars to Canadian they will use a rate of $1.2267. That is a round trip fee of 3.34%. It appears that they are charging about 1.7% per transfer in each direction.

When I wrote about this in 2007 it appeared at that time that they were charging 1.8% round trip or 0.9% each way back then.

I consider a 1.7% fee for electronic transfers between TD investment accounts to be a rather obese fee. Banks should certainly make some fee on this transaction but I think 1.7% is beyond excessive.

There may be a may around this by buying a U.S. dollar fund called DLR-U and DLR on Toronto. DLR is U.S. dollars and trades in Canadian dollars while DLR-U is U.S. dollars and trades in U.S. dollars. Apparently one can buy DLR in a Canadian account and then phone the broker to have it “journaled over” to a U.S. dollar account as DLR-U where you can then sell it. I am told that due to settlement rues this would involve waiting three days and you face the exchange rate movement for three days. There is also a bid/ask spread and trading commission. So this doe not look like much of a solution.

Another possibility may be to buy a Canadian stock that also trades in New York in U.S. dollars and then have it journaled over to the U.S. dollar account and sell it there. Even if it is possible to do this without waiting three days there is still a bid /ask spread and trading commissions.

Once your money is invested with a certain broker you may be essentially captive to their high exchange rate fees. And they are not likely to compete on these fees since people rarely choose a broker based on these fees.

Demographics and the changing age profile of Canada

I recently came across an excellent graphical tool from Statistics Canada. It shows not only the age profile of Canada’s population in 2011 but how the profile has changed going all the way back to 1921.


As expected it shows the baby boom bulge in the population. The baby boom bulge in the population is the group of people now between about age 51 and about 69. The number of people over age 51 does drop off however due to deaths. Below about age 48 there is a sudden decrease of about 10% in the population. So we have about 10% fewer people in their 40’s today as we had only 10 or so years ago. That certainly must have some impact on the sales of various products and services catering to that age group.

There is no-doubt an awful lot that could be discerned from looking at the profile of the population and thinking about how it will change in the future.

I found it interesting to see that there appears to be about 10% fewer teenagers in 2011 as compared to those in their 20’s at that time. And probably 15% fewer that are under age 10. This is baked into the numbers. Immigration has been fairly stable and will not change this. I think we can reliably predict that there will be 10% fewer kids each year available to enter college starting right about now. We should also be hearing about some elementary schools closing down as there will 15% fewer kids than a decade ago. Of course in some areas we will be building schools. But it must be the case that there will be schools facing too few kids.

We can also reliably predict that there will be about 10% fewer “household formations”, 10% fewer first time home buyers. or first time renters. That effect may not show up until this “baby dearth” group starts hitting about age 25 starting in a year or two.

Statistics Canada also provides its graphic by province, with a comparison to Canada though only for 2011 and 2006.


Shawn Allen

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