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Archive for the ‘Featured’ Category
Canadian Banking – World’s Soundest Banking System
Canadian Banking System Gets A+
Good news if you do your banking in Canada – you are storing your money in what is accepted to be the safest banking system in the world, ahead, even of banking paradise Switzerland. This means that even in the current global financial crisis, there is no cause to worry about the safety of your banking deposits, and that putting your money into a Canadian bank is as close as you can get to a guarantee that it will be handled in the most efficient way imaginable. After the annual study by the World Economic Forum polled bankers worldwide, Canada came out on top – well ahead of near neighbours the United States, which came in 40th.
The World Economic Forum polls its members every year, asking them to award marks out of seven for the soundness of a countries banking system. Canada polled a remarkable 6.8 out of seven, ahead of the previous leader as well as other notables such as Sweden, Luxembourg and Denmark, all of which are known for unshakeable fiscal probity.
This is news worth shouting about, as banks in many other countries have had to rely on government bailouts while others have gone to the wall. Canadian Finance Minister Jim Flaherty is a man with plenty of reasons to smile. As his counterparts in supposedly more prestigious economies flounder against a seemingly unstoppable wave of financial doom, Flaherty is presiding over a competitive economy with a lessening level of debt. As other governments borrow to escape the meltdown, Canada’s surefootedness is likely to reassure banking customers.
Canada has a progressive banking system too. It is a lot less stressful to try and get hold of your money here, with more Automated Bank Telling Machines per capita than any country in the world. Anybody who has ever spent time in a city or town with a dearth of ABMs can tell you that it’s a frustrating experience trying to withdraw money that you know you have. Sometimes it’s like they don’t WANT you to spend your money.
Electronic banking plays its own part in this most efficient bank system. Canada has the highest penetration levels worldwide of debit cards (enabling you to make use of your account even if you can’t find one of the country’s many branches or cash points), Internet banking (so if your bank doesn’t have one of the many branches nearby you can still conduct any transaction you care to name) and telephone banking. It’s a quite impressive story overall, to be honest. Knowing that your money is safe and that you face the fewest restrictions imaginable should you wish to make use of it means Canada should be in a position to ride out the crisis and come out the other side ready to compete.
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How to Buy an RRSP?
What Is An RRSP?
An RRSP (registered retirement savings plan) is not something you actually buy. You buy qualified investments to hold inside an RRSP. This is a type of account and you can hold a variety of products inside your RRSP.
What Products You Can Buy?
You can buy mutual funds, GICs, stocks, savings account and so on. These are just some basic products to mention. There are many other investment products you can buy and hold inside your RRSP account.
Is It Complicated?
Depending on what you are buying, it can be complicated to buy certain products such as stocks, bonds, etc. In my book Invest Now, I have described in detail how to buy these products. Today, in simple words, I will explain how you can open your first RRSP in a snap.
Two Easy Solutions for Novice Investors
Option One – Walk Into Your Local Bank
This is the easiest way to buy. Just walk into your local bank branch and your personal banker will be able to explain ins and outs of RRSP and what products you can buy based on your personal needs. Most of the banks have a variety of products to choose from, and you can pick the one that best suits your needs.
I like the idea of opening an RRSP in your local branch because it is very easy and simple. This option gives you the opportunity to talk to a live person, and you can hold your RRSP with the same institution you are already dealing with – that translates into less hassle and paperwork. Also, you have the option to transfer your money into your RRSP from your chequing or savings account.
Option Two – Do It Online
Financial institutions like ING Direct or President Choice Financial let you purchase RRSP online. This is good in one sense that you are doing everything from the comfort of your own home; however, there is no one sitting in front of you to answer your questions. Although they do have customer support to call, it’s not the same as talking to a person in front of you.
Final Word
One major advantage of going to a bank is that bankers are able to recommend and advise products based on your individual needs. However, this is not the case if you choose online option. Customer service reps will answer your questions and guide you through the procedures to choose a product, but they are not licensed to advise.
These are the basic and simple procedures to buy your RRSP. If you are looking to buy a wider variety of products, I would recommend award-winning book Invest Now – available at Chapters.Indigo bookstores and at all online retailers.
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What Is An RRSP – Part 2 – Advantages of an RRSP
What Is An RRSP – Part 3 – Disadvantages of a Registered Account
How Credit Card Calculates Interest
How Credit Card Calculates Interest
In Canada, credit card company uses mainly two methods to calculate the interest you pay. The methods are, average daily balance method and daily balance method. Although the methods are different, they generate same interest charge. If you are interested finding out which method your card uses, you can call their 800 number or you can find it in your credit card agreement brochure. Now let’s look at these two methods.
Average Daily Balance Method
Your credit card has billing period of 29 to 31 days. Average daily balance is just the average of you daily balance during your billing period. Average daily balance is calculated at the end of every month. Take the balance at the end of every day and add them up (A). Divide this total (A) by the number of days in your billing cycle to get average daily balance (B). B is multiplied by daily interest rate to get average daily interest amount(C). Now, to calculate interest charge for the month, multiply C by the number of days in the billing period.
To get daily interest rate, take annual interest rate and divide by 365. Also, interest rate can be found on your monthly statement.
Daily Balance Method
This method is simpler than average daily balance method. Instead of making one calculation at the month end, daily balance method calculates your interest at the end of every day of the billing period. Calculation method is simple. Take your daily balance and multiply that by the daily interest rate and add up daily interest to obtain interest for the month.
Purchases, Cash Advances and Balance Transfers
If you pay your balance in full, you never pay any interest. If you don’t pay your balance in full, you’re charged interest from the date you made these purchases until they’re paid for in full. Some credit card issuers charge interest from the date the purchases are posted to your account. You’re charged interest from the date you made the cash advance or balance transfer.
Let Your Credit Card Company Pay Your Interest
By paying you balance every month in full, you are actually using your card company’s money for free for your full billing period. Your card company always wants you to carry a balance so they can charge you interest and that’s how card companies make money. If you are paying your balance in full, you a re actually using your card company’s money at their high interest rate for free. Let me give you an example. In Sep 2006, I bought five British Airways return tickets for my trip at approximately $2000 each. My total cost was $2000 * 5 = $10,000. Most of the card companies charge 20% annual interest rate. If I do an approximate calculation for $10,000 at 20%, my one month interest charge would be $165. Yes, that’s right. My one month interest charge would have been $165. But I avoided this charge by paying my balance in full and definitely my card company did not like it because they lost $165. If you look at this little differently, you can say that I borrowed money for one month at 20% interest rate but I have not paid any interest because my credit card company paid it for me.
What do all these translate into? Know how you are being charged and what your interest rate is. Pay your balance in full. It’s like using your card company’s money at their expense.
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Updated – Is it possible to hold an annual fee credit card and still pay no annual fee?
What Is Your Mutual Fund Actually Costing You
These days you will hardly find an investor without having at least one mutual fund. Most of us never pay any attention to mutual fund fees, which can be very confusing and hard to grasp. Many of us do not realize how much of our returns can be evaporated by these fees. I consider one of the best features of mutual funds is that fund companies camouflage fees as a percentage of assets.
There are 3 basic categories of mutual fund fees – management fees which is known as MER, sales fees and special fees. I will discuss only MER because regardless what type or class fund you buy, MER is a built-in feature and it will be always there.
MER stands for Management Expense Ratio and expressed as a percentage of fund total value. MER is made of sales, administration, marketing, legal, accounting, reporting and portfolio management costs and charged directly to the fund, thus reducing the value of your investment. You will never see any statement or transaction or invoice or you will never write a check to pay MER as fund companies deduct this cost from funds per unit value everyday, making it invisible and hard to track. MERs can run from ?% to over 3% or even more. Let’s say a fund charges an MER of 2.5% which may sound harmless but when you look at in terms of real numbers, it looks scary and hard to believe. Suppose you have $100,000 in a mutual fund which charges 2.5% MER. Assuming you are 30 and will have this $100,000 invested till you reach 70. How much is your cost? The answer is a whopping cost of $100,000 ($100,000 * 2.5% per year for 40 years) I used very simplified calculations and omitted many other factors. Remember, there are other costs and taxes to pay as well. Be a smart investor by educating yourself and avoiding fees and expenses. There are variety of options these days and always do your homework before investing and seek help from someone whom you find knowledgeable and trustworthy.
