I hate dealing with Toronto-Dominion Bank (TSX:TD)(NYSE:TD), but that’s exactly why I love the stock.
Every year it seems like they find some ingenious new way to charge me a fee. Then just a few weeks ago the bank told me they were jacking up the charges on my chequing account yet again!
Enraged, I called my branch and threatened to take my business elsewhere. However, I never followed through. As maddening as it is to pay more fees, moving my accounts around is just too much work.
So, I stay and the charges keep rising. Of course, I can’t believe I’m the only one who’s ticked off, but how can we fight back? Well, I say if you can’t beat em’, join em’.
If you’re tired of paying bank fees, you need to read this
TD isn’t the only company hiking fees. On June 1 customers at the Royal Bank of Canada will face an array of new charges for once routine banking tasks. Some RBC account holders will have to pay $5 for making a mortgage payment and $2 for making a payment on other loans.
The Bank of Montreal introduced revised rates last week. The Canadian Imperial Bank of Commerce and the Bank of Nova Scotia—the remaining two of the country’s Big Five banks—were the first to change account terms earlier in the year. The moves will add millions of dollars to bank profits, while squeezing household budgets in the process.
How can they get away with this? Well, Canada, if you’re looking for someone to blame, you only need to look in a mirror. We are loyal to a fault with our big banks.
Your dad banks with TD, so you bank with TD. If your grandmother does business with BMO, chances are you do, too. It’s a hassle to shop around and move accounts, so the big banks try to make it as convenient as possible to stay with them.
According to the Financial Consumer Agency, nearly 70% of us still bank with one of the Big Five in spite of higher fees. Being loyal and risk averse are the fundamental qualities of our nation’s character. The banks are more than happy to take advantage of these traits and they set their prices accordingly.
Apathy is a problem, too. Canadians, by and large, find personal finance about as exciting as a mash-potato sandwich. Their thought process goes like this: “It’s just a couple of bucks each month. I’m too busy to research other options.”
However, it’s this ability to pass on price hikes that make the Canadian banks such wonderful investments. Firms who can lock in customers generate superior profit margins and strong free cash flows. That puts them in a better position to return money to investors through dividends and share buybacks.
Take TD, for example. Imagine if you had purchased 100 shares of the “green machine” at the start of 1983 and never bought another share. Today, thanks to stock splits, you would have 2,400 shares. What’s more, those shares would be spinning out more than $4,500 in annual dividend income—more than the $4,000 you paid to buy those original 100 shares.
Other banks have done well, too. For the 10 years ended Dec. 31, 2014, a portfolio of Big Five stocks delivered a compounded total return of 11% each year, beating the S&P/TSX’s annual return of 8%. For the 20 years ended Dec. 31, the banks returned 16% each year, compared with just a 9% annual gain from the broader market.
If you can’t beat em’, join em’
Of course, there’s no guarantee those returns will continue. Just ask anybody who owned bank shares during the financial crisis. But one thing’s for certain: seeing those dividends land in your account makes it easier to deal with getting dinged on fees.