Changes to Senior Banking: Free accounts may disappear

July 3, 2012 – Recently, TD Bank eliminated free bank accounts for seniors, being the first among Canada’s banks to make these changes. Breaking away from the standard free seniors’ accounts, TD will now charge those who are 60 years and over a standard fee with a 25 percent discount. The fees are waived when a minimum balance is maintained. For example, their most basic senior plan requires an $8.20 fee if a balance of $2,500 is not maintained. These changes will be applied to new accounts and not to existing senior accounts.

TD’s Seniors Rebated Accounts

Eligible Account Standard Fee Senior’s Monthly Rebate Senior’s Monthly Fee (after rebate) Minimum Monthly Balance to waive fee
Select Service $29.95 $7.50 $22.45 $5,000.00
Infinity $14.95 $3.75 $11.20 $3,500.00
Value Plus $10.95 $2.75 $8.20 $2,500.00

TD defends the changes stating that they need to consider their long term needs for profitability. Others argue that these changes should be made since many seniors are better off financially and many are working longer and have higher incomes. It is true that financially secure seniors may not feel threatened by these changes, but not all seniors are financially secure.

CARP members have expressed concern for low-income seniors, especially for those relying on GIS and OAS. These individuals may be unable to maintain sizable balances and the new fees will be another challenge to their tight finances. As a result, there is the concern that free banking for low and fixed income seniors may disappear if other banks follow suit.

Although banks are for-profit institutions, it may be unfair to disadvantage those who are already financially strapped. Unlike many other goods and services for which seniors receive discounts, bank accounts may be considered non-discretionary. It’s difficult to cash a cheque and pay bills without a bank account and no one should be driven to cheque cashing outlets that charge significant fees, which range from $2.50-$4.90 per cheque.

While a blanket exemption for everyone over the age of 60 may no longer be justifiable, banking services can be considered almost an essential service with few alternatives available. Therefore, there should be a low cost (or free) option instead for pensioners who are low income, cannot maintain high balances, and only need to make a few monthly transactions.

Discounted options

The good news is that other than TD, other Canadian banks still offer no-fee accounts for seniors. Plus, there are other low cost options available besides these senior accounts. According to the Financial Consumer Agency of Canada (FCAC), eight of the largest banks have committed to offer low-cost accounts with features required by the government. The eight banks include: Bank of Montreal, CIBC, HSBC, TD Canada Trust, Scotiabank, Royal Bank, National Bank, and Laurentian Bank. Available for everyone regardless of age, these low-cost accounts are capped at $4/month for administrative fees and are required to have features such as free monthly statements or bank book, ability to write cheques, and no charge for deposits.

The FCAC’s website provides a summary of the low-cost accounts for the eight banks and a banking package selection tool to help consumers choose an account that is best for them.

 Read the fine print

Having other options is great, but it is important to read the fine print when selecting a low-cost account. FCAC requires that the low-cost accounts offer 8-15 free debit transactions per month, allowing at least two of them to be in-branch transactions. If a low-cost account limits in-branch transactions to two, all other transactions would have to be electronic via internet, telephone, or automated banking machines. If this limit is exceeded, the account users would be subject to additional fees.

Similar to CARP’s paper bill concerns, this particular feature presents a concern for seniors who rely on in-person branch visits to do their banking due to limited access to internet and computers. As a result, it would be a challenge for such individuals to comply with the limit of two in-branch transactions. Currently, Laurentian Bank and National Bank have limited in-branch transactions to two and Scotiabank to four; the other banks do not have a minimum on in-branch transactions.

Ask your bank what it’s hiding

 Despite the banks’ commitments to low-cost accounts, not all banks disclose their low-cost accounts to potential clients and current customers. If profit is the bottom line for banks, it is unlikely that they would promote these low-cost accounts. Ask your bank for more information on low-cost banking options.

Not all seniors will need or want low-cost or free accounts, but for those on low and fixed incomes, even small amounts of banking fees can add up quickly. CARP will continue to monitor and report on this issue.