Should I switch bank (accounts)?
This question comes up often, but usually too late, after the Bank has taken money out of your account and left you short on your mortgage, car payment or any number of things scheduled to come out. If that is stressful enough, you get hit with NSF fees and overdraft fees, adding insult to injury. Yikes. What a mess. A mess that could have easily been avoided if you only knew a few things.
First, banks have a right of offset. That means that if you owe them money and you do not pay it, they can go into your bank account and take it out. Let’s say, for example, you have an account at MyBank. You also have a MyBank Credit Card. You have fallen behind on your credit card payments because, well, life got a little off track. You were laid off for a few weeks, or sick, or any number of life events. You were planning to catch up once your income was back to normal. In the meantime, your paycheque/EI etc is going into your account. You leave money in the account to cover your mortgage and insurance. A few days later you get a call from your insurance company, your payment bounced. “What?!” you say to the gal on the phone. “I had money in my account”. You check online and there is a $200 payment to your credit card. “I didn’t make that” you think to yourself. No, no you didn’t. But it was overdue and the bank took it out. Rightfully so, you owed it to them and they have the right. But your insurance company doesn’t really care why you missed your payment. You missed it. And there are consequences.
Never keep all your eggs in one basket.
I’m sure you heard that phrase before. It’s a good phrase. We have laying hens. And one morning, after gathering up the eggs, I was heading back to the house when I tripped. Head over heels, with a basket full of eggs. You can imagine the mess. I think one survived. Ok, it’s not really a literal saying, but it does apply. And it applies to banking quite well.
If you want to always have control over your money, I recommend diversifying your banking/borrowing. Your money goes into one account. Your mortgage is with another institution. Your credit card with another. You get the picture. That way, if life gets in the way, and you have to miss a payment, you don’t risk having the money taken from you.
A few other things you should know:
- Banks can only take money directly out of accounts held with them. For example, if you bank with MyBank, and your credit card is with YourBank, YourBank cannot take money out of MyBank. Not without taking legal action to do so. (That will be another blog)
- If your name is joint on an account with someone else, there is a risk that they bank can take money out of that account. The joint holder would then have to contact the Bank to get their money back (and prove that it was their money)
- You do not have to have your mortgage taken out of the same account where your mortgage is. For example, you can have a mortgage with YourBank and have the payment come out of BankX.
In summary, diversify your banking/lending and gain more control over your finances. Maybe it will never be an issue, but in the event it is, you will thank me for it.
Mary Ann Marriott