Choose From The Best Products

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:

1. 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.
2. Understand the fee structure. Pay no fees if possible.
3. 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.

Fund Fees for Currency Hedging

The performance of currency-hedged funds vs their non-hedged counterparts are largely based on currency fluctuations. Take a look at the yearly performance of the hedged and non-hedged TD e-Series funds. Everyone has an opinion on whether hedging is a good idea, and it seems to me that much of it has to do with recency.

In any case, I thought it would be interesting to see how much fund companies are charging for the benefits (whatever the benefits may be) of currency hedging:

Index/Sector	Hedged Fund	MER	Details	Hedging Fee
iShares
S&P 500	XSP	0.24%	Holds IVV (0.09%)	0.15%
Russel 2000	XSU	0.35%	Holds IWM (0.20%)	0.15%
EAFE	XIN	0.49%	Holds EFA (0.34%)	0.15%
Claymore
Core US	CLU	0.65%	Non-hedged CLU.C charges 0.65%	0.00%
Emerging Markets	CWO	0.65%	Holds VWO (0.27%). Since VWO is not a Claymore fund, the CWO MER is on top of what is charged by VWO.	0.65%
Global Dividend	CYH	0.65%	Holds 60/40 split of HGI (0.65%) and CVY (0.60%). Blended MER is 0.63%	0.02%
TD e-Series
US Index		0.48%	Non-hedged MER 0.33%	0.15%
International Index (EAFE)		0.50%	Non-hedged MER 0.48%	0.02%

Those are the currency-hedged funds I was able to find from iShares, Claymore, and the TD e-Series funds. I also wanted to look at the BMO ETFs, but will wait until they are actually trading before running through this exercise with them.

I'll let you decide whether or not currency hedging is a good idea, but you can see that funds are charging quite a wide range of fees for the service. iShares seems to charge a "standard" 0.15% which in my opinion is a little high. Then there is Claymore, with a wide range of fees depending on the fund, from 0.65% to hedge world currencies (CWO), down to 0% for US Dollars (CLU vs CLU.C). One point to note is that if you are interested in a hedged version of the EAFE index, it may be more cost effective to use the TD e-Series fund at 0.5% MER versus XIN which charges 0.49% MER since the TD e-Series funds don't incur transaction fees.

What Do You Do With Your Cash Savings?

There are many reasons to hold some amount of cash, and not put 100% of it into other investments. Emergency funds, and savings for near future purchases are examples.

Cash savings is one area where the rate that you earn makes all the difference. The products offered are for the most part very similar, so it really does pay to find the best rate of return possible.

My personal preference is for high interest savings accounts. For short term cash holdings, it's hard to beat their liquidity, principle protection, and CDIC coverage.

Let's consider some of the other options:

• Keeping it in your chequing or savings account at your bank: While letting cash sit in your account after your pay cheque is deposited may be the easiest option, and probably as safe as a high interest savings account (assuming you can resist the urge to spend it), moving money to a high interest savings account really only takes a few minutes on the internet, or over the phone. You'll earn many times more interest (in the range of 2 to 3 times more over a traditional big bank savings account) for your few minutes of work. Remember, the premium you earn over these accounts are guaranteed earnings. It's free money for a small amount of extra work.
  
• Money market mutual funds: This is a possible option, but it is not as liquid as a high interest savings account, and earns very close to what a high interest savings account would earn. If you choose this route, check for loads on the fund (you definitely want a no load fund for short term savings), and check for short term redemption penalties. Many funds also have minimum initial investment restrictions.
• Money market ETFs: For short term savings, the commissions you pay on a money market ETF will kill your return.

So if I've convinced you to use a high interest savings account, which one do you choose? Although advertising is a great way to get introduced to a product (ING Direct, for example), you really owe it to yourself to find out about as many other competitors as you can. Luckily, Peter has a great web site for comparing the rates offered for some of the leading institutions. Check out his site, especially the handy comparison chart.

Aside from picking the highest interest rate, you want to also check out the history of that bank's relative rate versus the competition, in case you're just catching one that has adjusted its rate. You also want to consider how convenient it is to move money back and forth between it and your regular chequing account. Do you have to send cheques? Or can you do it over the internet? Finally, make sure you check for any fees they may charge.

If you decide to open a TFSA account at one of these institutions, also note that some banks are offering a different TFSA rate than their non-registered accounts.

I realize that opening a new account can be a hassle, but consider that once your account is open, you can use it for the rest of your life (or the life of the institution). If you can earn a guaranteed one or two percent more on your short term savings for the rest of your life, I think it's well worth the time you put in now to get that account opened.

So, what do you do with your cash savings?