Category Archives: Credit Cards

A 50% Service Fee!?

Consider this to be a “What not to do” lesson in personal finance.

I’m usually pretty much on the ball when it comes to our finances. But recently I had a slip-up that cost us 50% in fees.

We have most of our Canadian financial assets with one financial institution, which are spread over a number of accounts. The bulk of our cash savings are sitting in a high-interest account with the bank. I’ve also had my main credit card at that bank for about 13 years.

I have never had any problems transferring money or paying off my credit card because there are no fees to worry about when moving money from one account to another within the bank.

I applied for a new credit card in January with another financial institution, however, and recently set it up to make a monthly donation to a charity. When my first bill came in, I went online, set up a new payee, and paid off my credit card… all $10.00 of it… from our high-interest account. I checked my new card a few days later to confirm that the payment went through, and thought nothing more about it.

Last week I was going over my April transactions and noticed that right after my $10.00 credit card payment, there was a $5.00 service fee for a payment to an outside account.


Okay, I admit that 50% sounds worse than $5.00,  but it’s still a hard pill to swallow.

On one hand, I want to leave it as-is, as a bit of self-punishment; a 50% stupidity fee, of sort (I long ago read and knew about the fee, I had simply forgotten). More likely, however, I will call the bank and ask them to reverse the charge.

Hopefully they will allow me to leverage my very long history with them against my very recent stupidity.

Using Credit Card Points Toward RRSPs Revisited

One year ago I wrote my first post on this blog. It was a simple little post about using reward points on RBC or National Bank credit cards toward RRSPs held with those banks. I don’t think anyone read that post for months.

Starting this past January, however, that first post of mine has seen a massive spike in traffic generated from search engines, as people think about making their RRSP contributions. I thought I would repost for those thinking of getting a start on this coming year’s contributions. Remember, by contributing earlier in the year, you have more time to compound your money on a tax deferred basis.


If you have a Royal Bank or National Bank of Canada credit card that accumulates points, you can redeem those points for much more than a new desk lamp.

While certain TD, Scotia, BMO and CIBC cards give “cash back” credit of 0.25% – 2% of your yearly spending, RBC and National Bank of Canada encourage saving and lowering debt with their point system by allowing those points to be redeemed for “financial rewards” coupons.

At RBC points can be redeemed for vouchers that can then be deposited into your Royal Bank RRSP, TFSA, or RESP account. If you hold your mortgage or line of credit with the bank, you could also apply your points to the principal of those loans.

Redemptions start at 12,000 points for a $100 voucher, and move in increments of $25 per 3000 points. At these numbers, and assuming 1 point per dollar charged, it works out to a bonus of 0.83% of your credit card spending.

National Bank of Canada cards work out to a little higher (0.91%) but have slightly different options. Like at RBC, points can be redeemed toward your National Bank RRSP or TFSA account, but they do not seem to have an RESP option.

Points can also be used to pay down your mortgage or other loans held at National Bank, and if you are a Quebec resident, they can even be used for a rebate on your car or home insurance.

Redemption starts at 11,000 points for $100, and can only be redeemed in amounts of $100 (ie. 11,000 points, 22,000 points etc.)

Though it’s too late to use your points for the 2010 tax year, you can redeem anytime and get a good start on this year’s contributions.

After a few years of compound interest, I’m sure that the tax sheltered cash will be worth a lot more than the frying pan you could have had.

Related Posts:
  1. Using Cash Back Cards Toward RRSPs etc.

Watching Out for Credit Card Fraud

Recently, Larry MacDonald posted an article about credit card fraud in the States. In that situation people’s cards were being charged a small amount ($0.20 or $9, apparently) though they had no idea what the charge was for. Presumably, many people just thought it a small amount of money so never looked into it. The groups behind the theft, however, pulled in about $10 million.

The Japan Times recently reported of another type of scam that is targeting foreigners here. In this case, credit card information would be stolen at a bar, and then massive amounts are charged to the card. The reason foreigners are being targeted seems to be similar to the reason small charges are being billed in the States – there is a good chance that it won’t be challenged, or that it will be too late by the time it is realized.

Foreigners in Japan could be made up of one of two groups: people who live here or people who are on vacation here. In either case, there is a chance that the victim cannot fully communicate in Japanese, and would therefore have trouble explaining the situation to the police or in court. In the case of vacationers, they may be half the globe away by the time they realize there is a remarkable charge on their card.

The situation in the Times tells of an Italian man who lives in Tokyo. He spent about $60 at a bar, his card was returned, and then a $4000 charge from a restaurant appeared a couple of weeks later. The bar in question has since disappeared, it seems.

Luckily the victim not only lives in Japan, but can speak Japanese. Because of that he was able to notify police and win his court battle against the restaurant and credit card company.

Japan is generally a safe place to live, but it is certainly not lacking in scammers.

Change Cards… Not Accounts

Banking can sometimes be a lot like baking. Change an ingredient and you change the result.

Sometime ago I changed my bank account to reflect my usage. I changed from a monthly fee to a free, pay per debit charge plan. The side-effect was that the fee on my credit card was no longer waived. The annual fee was less than the total monthly fees on the bank account, but it was still annoying.

I didn’t want to close my credit card account, however, because it had a 12 year history, and removing that would affect my credit score, which is something I want to keep relatively intact.

What I then thought about, and confirmed through a phone call, is that changing cards on the same account keeps the account in tact, so does not affect your score. Doing so keeps the same account active, and the information still flowing to the reporting agencies.

To clarify, your credit card is merely the piece of plastic. Your credit account is broader, and dates back to when you first applied for credit with a particular provider. In my case, I have had 3 credit cards on the same account. The first was a student card, the second was the normal version of the previous card that I switched to after graduation, and now a third card. However, my account is the same 12-year-old account.

You may not be able to switch from, say, a point card to an airmiles card, or a gas point card to a cash-back card (check with your provider), but you should be able to switch to a similarly structured card with the same provider. I switched to a no annual fee card that has the same point system (though it accumulates at a slower rate), so I can still use my points toward my RRSP or TFSA. I also ended up getting half of my last fee credited back to my account. The change also gives me some better travel insurance, and extended warranty of products bought with the card.

When it comes down to it, unless you are putting a lot of purchases on your card to justify the annual fee, you are probably better off with a no-fee card. Calling to change cards on the same account will save you money and leave your credit score untouched.

Use Sink Funds for Bills

Recently I’ve been thinking about using something akin to a sink fund within our budget.

A sink fund is a business term used by some companies that issue bonds. They may set up a sink fund that, basically, saves money to use toward paying back the principal on their debt. That is to say, the money is still in their possession, but it is earmarked for paying back debt and can’t be used for anything else.

The idea goes as follows: set up a separate high interest savings account and label it, say, credit sink fund. Use your card as usual, but when you get home after any purchase, jump online and transfer the corresponding amount from your main saving/checking account to the credit sink fund.

Do that for the month until your payment date comes, and then pay off your credit card balance using your sink fund.

What advantage does this have?

In real terms, absolutely none. Psychologically, however, I think it has a few benefits. First and foremost, there is absolutely no surprise when your bill comes. Since you have been adding to your sink fund throughout the month, you would be constantly aware of how much you have owing. Linked to this, you would never have to think about what is in your checking account. Anything in the account is yours to do as you wish, because you have already taken care of your credit through the sink fund.

To a lesser degree, you would also be gaining interest in your sink fund that allows you to see the financial benefit of your interest free loan from the credit card company. (Let’s be clear, you are no better off, as the interest would have been gained in your main account. This just shows you exactly how much is a result of your using credit.)

The above mentioned DOES have a benefit over using a debit card, however, as debits are removed from your account right away, meaning you are giving up interest for the rest of the month, and any points or other rewards that are associated with your credit card.

You just need to be responsible, and pay off in full every month.

A Second Credit Card, Part 1.5

As I mentioned in an earlier post (which I consider part 1), I am in the market for a second credit card, and promised to explain why.

Don’t worry. I’m not in any financial trouble; far from it, actually. But we would like to buy a house or condo about 5 years from now.

What does that have to do with a second credit card?  Some time back I read on the Canadian Mortgage Trends blog that beyond having a good credit score, “lenders often want to see a minimum of 1-2 years of satisfactory payment history and at least two trade lines.”

Depending on which company is used, I have either a 799 or an 839 credit score, both of which are well above national averages. Still, the fact that my credit history is mostly made up of my 12-year-old credit card, a couple of inactive department store cards, and two student loans I paid off 3 years ago, it got me thinking.

Armed with print-outs of a recent credit score and report, I met with a mortgage specialist at my bank when I was in Canada last December, just to talk hypothetically. He said that based on my score and a look at my history, he would give me a mortgage at prime, but said/hinted that, yes, having a second active credit card would help, and maybe give me some more bargaining power if it had some history to it.

Since any mortgage is 5 years or so down the road, it seems like the best time to add a new card to my portfolio. First, it will give some history to the card. Second, it will take care of the second trade line. And third, by getting the card now, the effect of a lower credit score (which will happen as soon as I apply for new credit) will be made moot by the fact that it will be a five-year-old card by the time I look for a mortgage.

The only problem? In my search for my second card, I’m finding myself being very very picky. It  just may take me 5 years to select the one I want.

When Pre-Approved Credit is Good

Last night I called Visa about a few things. One of those things was to ask for a credit increase.

I don’t need a credit increase really, as I only use my credit card when I am back in Canada, but my current plan is take a temporary hit on my credit score in order to have a stellar report 4 or 5 years from now when we are  in the market to buy a place.

When I am back in Canada, I use my card for about 90% of my purchases. This results in using about 50% of my available credit. Having a high ratio (amount charged to amount available) is a bad thing for your score, so I wanted to increase my limit, so that when I travel the same purchases will only be about 30% of available credit.

The chap I was talking to said that I have a pre-approved credit increase available on my account. It was less than I was asking for, but by going this route I have achieved nearly the same effect without affecting my score.

The reason, as I was assured by the rep, is that pre-approved increases on existing accounts have no bearing on your score because it is a completely internal review; there is no inquiry into your entire credit report. It is completely based on your account history and the assets you hold with the bank.

Let’s be clear here. I am not talking about getting a piece of junk mail for a pre-approved card. That will affect your score if you apply, as it would be a new account. I am talking about a pre-approved increase on an existing card.

My next question for the lad was why I didn’t know about it. I have electronic statements, so shouldn’t I have gotten the offer by email? Not necessarily, he said. Some times the pre-approved increases are on the account, but are only mentioned if the customer happens to call.

It was nice to know that the companies aren’t always soliciting for more credit, but that there are instances where they will work with you if there is communication. That was a little reassuring.