Think of all the financial products you use: bank accounts, credit cards, investment products and so on. While the big, well-known players certainly have the most visibility, there is usually a wide range of alternatives to choose from. Considering you will probably stick with your choice for years (if not decades), it is worth taking the time to weigh the available choices before committing to a product. When I think of all the time I see people putting into choosing TVs, skis, golf clubs, and so forth, I often wonder how the financial industry would look if we also put as much care into evaluating our financial product choices.
While there is rarely a definitive "best" product for everyone, there is likely a group of "pretty good" products to choose from. I think it's worth the trouble to make sure you're using Pretty Good Products.
Here is what I would look at when comparing the following types of products
- Bank accounts: Fees. There's really no great reason to be paying fees for a basic personal bank account. You're depositing money that the bank will make use of and you shouldn't pay a fee for that. Start by looking at what restrictions are put on a no-fee account and see if that satisfies your typical usage. Also consider the smaller players like credit unions and online banks. They are typically set up so that you can use ATMs on The Exchange network.
- Credit cards: First of all, you really shouldn't be carrying a balance on any of your credit cards. The interest rate on balances is way too high and you'd be better off getting a line of credit from your bank if you want to borrow money. That said, assuming you are paying your bill in full every month, you probably most want to compare fees and rewards on credit cards. Again, start with a no-fee card. Just about every card issuer has a no-fee choice. For rewards, I consider cash-back to be best since you can do anything with cash. However, depending on your usage you may want to look at some more specialized rewards such as AirMiles. RedFlagDeals has a nice comparison tool.
- Discount Brokerages: Look at account fees and see what it takes to have them waived or lowered. Most brokerages will waive fees (account fees and trading commissions) if your assets deposited with them are over a certain amount. You may be able to consolidate your family's assets under one brokerage to meet those minimums. Many brokerages advertise additional tools like stock screeners or access to market research. If you don't use those tools (and I rarely have heard of people using them at their brokerage), then don't give them much weight in your comparison.
That's just a sample of some of the products you probably use. Others include your mortgage, and lines of credit. In all cases, the evaluation process is similar:
- Check out the competition--the big players don't always have the best products, so include the smaller players as well. Get to know what is an average product so you can identify above-average products.
- Understand the fee structure. Pay no fees if possible.
- Don't pay for what you won't use.
Do consider the safety of using a product or company. If you highly value being with a big-name company because you think it less likely to close up shop than a small company, then you can make that part of your comparison criteria. However, most Canadian banks are CDIC members, and most Canadian brokerages are CIPF members.
Finally, don't fret over finding the Perfect Product. If it's taking too much time of your time to figure out the very best fit for you and the actual difference is small, it's no problem to chose a great product and get on with life.
