Wal-Mart's First Financial Product, a Mastercard

I expect more financial products to roll out in the near future, hopefully including high interest savings accounts and GICs with rates to challenge the likes of Ally, Canadian Tire Bank, and Presidents Choice Financial. In the meantime, they have issued their own Mastercard and you can read about it here. More details are at Wal-Mart's site here.

Wal-Mart Gets Retail Banking Approval in Canada

This week Wal-Mart received final approval to offer retail banking services in Canada. Their official launch is on June 15, and they've been tight lipped about it so far. I'm hoping that we will see something like the convenient online access provided by Ally along with savings rates to match. Maybe this will finally light a fire under the likes of ING Direct and PC Financial whose rates have been very sadly lacking of late.

Also in recent news, credit unions have been given the green light to go national, leaving their provincial borders behind if they so choose. If they do elect to do this, they will have to adopt CDIC insurance, and its $100K limit. I hope that the online Manitoba credit unions such as Achieva, MAXA, and Outlook don't go national as we already have access to them for deposits, and their insurance is unlimited.

Ally "Bank" Sets up Shop

There's a "new" financial player in the high interest savings account game these days. Perhaps you've seen their ads on tv, one of which has a man taking a toy truck away from a boy and giving him a cardboard cutout of one instead. Many of us can relate to this as we've watched the interest rates on our savings accounts head downward even as the Bank of Canada rate has held steady. Ally promises to be different, but we'll have to see. They are currently offering 2% on their high interest savings accounts, which is almost double the rate offered by the likes of ING Direct. Triple the now pathetic 0.65% offered by Altamira Cashperformer, now owned by the National Bank of Canada.

Ally appears to operate much like ING Direct, with electronic linked access to your regular bank account. They promise no fees. They also claim that interest is compounded daily. They are CDIC insured up to the usual $100K. Ally is currently a product of ResMor Trust, so if you already have financial deposits with ResMor, you may want to pay attention to the fact that the insurance limit refers to all of your ResMor holdings. You can read more about them here.

I think they deserve our business as many of the other players now are paying rates close to the "big banks" that they like to mock in their ads. When it comes to your savings, you really should pay attention and shop around.

Get $200 Free from TD Canada Trust

TD Canada Trust have just introduced their "Simply Save" program. This program is a lot like Scotiabank's "Bank The Rest" program, which is really designed to just trigger more overdraft protection service fees on their poorest customers. You can read my previous blog entry on that if you like. In a nutshell, every time you use your atm card, be it for cash withdrawal or debit purchases, you can designate an amount of money to be transferred into a savings account. So it is just an automatic way to transfer money out of your chequing account and into a restrictive savings account with high fees. Such a savings account typically allows one free withdrawal per month, with a $10 fee for any subsequent withdrawals. So be careful if you have such a savings account, read the fine print.

For a limited time (to July 24, 2009), if you sign up for this program, TD will give you $10 (up to a maximum of $200) over the next year, for every $100 you manage to transfer to yourself. If you set up the plan to transfer the plan maximum of $5 every time you use your card, then it will take 20 transactions to save $100. So that's 20 transactions for the bank to give you a free $10, or in other words, the bank will pay you 50 cents every time you use your card for the next year. That's pretty darn sweet. So essentially if you shuffle $2K to yourself using 400 transactions next year, the bank gives you $200. To put it in perspective, you'd have to have a $10,000 GIC at 2% for a year to make $200. It's like the bank is setting aside 10 grand for you.

Don't forget to pull your savings out once a month and transfer them to some CDIC insured bank such as Canadian Tire Financial Services who will actually pay you some decent interest on the money. This will minimize the opportunity cost of your $2K used in the scheme.

Car Insurance Liability Coverage - Do you Have Enough?

If you're a car owner, I'd like you to take a look at your liability coverage on your insurance policy. Is it only a paltry $500K, or is it $1 million or hopefully higher? A lot of car owners just blindly keep renewing their policies year after year without considering how much actual liability coverage they have. In my opinion, $1 million is no longer enough and you should really be taking it up to $2 million, which will cost you around $20 per year more than the $1 million level. This is even more important if you occasionally drive into the USA, since our dollar has fallen to about the 80 cent level.

Deflation "Grows" Your Existing Debt

In a recent column in the Globe and Mail, Avner Mandelman points out that we're likely in deflationary times. In normal times of inflation, money slowly loses its value as it gets diluted. If you're in a negative monetary position ie. carrying debt, inflation will slowly make the debt less and less significant while your wages likely rise as well. During deflation, the opposite occurs. Your debt becomes more and more significant as your wages likely sit flat or possibly decline. On top of all that, the stuff you bought with the borrowed money is likely to be dropping in value too, faster than just the usual depreciation. I'm a big proponent of retiring your personal debt quickly, but in times of deflation I can't emphasize this enough.

Christmas Gift Cards - Be Careful!!!

We're now coming into the Christmas gift-giving season, and gift cards tend to be very popular. Stores love them since they get cash in advance, and overall the full value purchased on them tends not to be completely redeemed. They get lost, set aside and forgotten, or damaged leaving behind stored value that simply never gets spent. Due to there being no simple way to tell how much money is left on them, they get set aside. Always keep the last register receipt with your gift card, else it's like having store specific cash that has all the ink faded off except for the serial numbers. Some stores do have websites that let you check the money remaining on the card, but who wants to have to go running to the web to find out that there's $0.50 left on a card?

Next year, 2009, is not looking very good for retail, so store closings and bankruptcies are likely to be quite common. Don't be left holding useless gift cards, and I also don't recommend giving gift cards that are likely to become worthless. Assume that any gift card is not going to be redeemed in one fell swoop, and that your "giftee" is going to take six months or more to spend it down. In light of this, only buy gift cards from solid businesses that are highly likely to be around through 2009.

Finding Secure Money Mattresses

In these turbulent financial times, cash is king. Even gold doesn't seem to be doing all that well. So in this brief post, I'd like to just take a look at where one can securely park their money.

Money market funds, traditionally, have been great places to park your cash. They have generally paid pretty good rates of interest. But just how secure are they? They are not covered by CDIC insurance, and do you really know what paper is held by them? I'm going to define a secure money "mattress" as a place to park cash where the interest rates are top notch, and where this cash is insured. So just where are these mattresses? I'm listing the top three that I'm aware of, in order of my perceived quality of the insurance backing them.

1. Pretty much any high paying Canadian bank account with CDIC insurance qualifies. The insurance covers you up to $100,000 per depositor per bank. An RRSP account qualifies separately and so does a joint account. The downside is that if you have a lot more than $100K in cash to protect, you are having to open accounts at more than one bank, spreading around your $100K amounts. Such high interest accounts are ING Direct, President's Choice Financial's Interest Plus, ICICI Bank, and HSBC Direct. Do your homework though, some of these banks are easier to deal with than others.
2. CIPF Insurance covers investment brokers. If an investment broker goes bankrupt, your cash on hand with them is covered up to $1 million. But can you find a broker in Canada that will pay you more than a laughable rate on idle cash? I'm aware of only one right now, Etrade Canada with their new cash optimizer account. I believe that this is CIPF insured up to $1 million and they pay slightly better than ING Direct right now. This can save you having to maintain multiple $100K accounts at different banks. But it is still prudent not to have everything in one pot anyway. However, as always, do your own due diligence here and don't rely on what some guy has typed in his blog. Yes, even me. ;)
3. Manitoba Credit Unions. I'm not sure what the rules exactly are for opening accounts in Manitoba, but their credit union bank accounts are insured to unlimited amounts even for non-residents. Such credit unions are Achieva Financial and Outlook Financial. They will typically service charge the hell out of you unless you just use the accounts as mattresses and don't transact on them. But they pay really high rates of interest. Do lots of your own due diligence here.

My Idea Became a Billion Dollar ($945 million) Company

Back in 1999, three Nortel employees, namely myself, Claude Bouffard, and John Shannon were enjoying beers after work at the Royal Oak pub in Kanata, Ontario. We bantered about some ideas around micropayments on the internet. Why couldn't we pay small amounts of money, such as 25 cents for the newspaper, and have it just show up on our phone bill? We worked in the DMS division of Nortel and had some idea of how the billing system worked. After all, telcos have very well established billing systems for handling tiny line items, and they have an established system for reconciling these amounts amongst themselves. So the idea was essentially that you'd click on a link, a secure transaction box would pop up and prompt you for your "Go Pin". Well, the name Go Pin would come later but it serves to help you understand how it would work. The 25 cents or whatever it was would simply show up on your phone bill.

Our VP at the time, Bob Tipple, was convinced enough by John and Claude to allow Claude to run full-time with the idea. Claude being the infectious ball of energy that he is, drove the idea forward to the point where it had enough legs for the internal incubator folks to take the whole idea seriously. John and Claude sold it to the incubator folks, I was occasionally cheerleading from the technology side. Nortel created the business as GoPin Inc, and venture capitalists were found, and finally a CEO, Gary Marino, from the banking industry in the US came on board to lead. The company underwent a number of name changes, to Pinmoney then I4Commerce, then BillMeLater and it moved to Baltimore. Also, as you likely already figured out by now, the original idea morphed into BML doing realtime credit checks and handling the billing, as opposed to trying to herd the cats we like to call telcos.

Ironically the company sold for $945 million, more than Nortel's total market capitalization today. What did I get? Well, I do have a nice mug, a great story, a sense of pride, and I'm a little older and a bit wiser now. Maybe it's time to try another idea, but this time actually get some money out of it. I do not know how Nortel itself fared, they likely cashed out to a VC early.

Update: This has been picked up by the mainstream media, I have made the front page of the Ottawa Citizen today (Oct. 9). Why does everyone have to misspell my last name?

Don't Catch a Falling Knife

Today I would simply like to say that one should wait until the stock market stabilizes and begins a sustained upwards trend before you decide to buy in. While you may look at those low stock prices and start to salivate, please hold off, unless of course you prefer to just roll the dice with wild abandon, or have gambling money you want to spend now. By holding off, you might not end up buying the absolute bottom, but don't be greedy, have some prudence in these times of uncertainty. If you prefer, buy in on a regular basis over time (dollar cost averaging), that's a better idea than trying to grab at some of these falling knives.

The Race Has Begun for TFSAs

Today, the race has begun in Canada to get you to sign up for a tax free savings account. Since TFSAs don't actually come into effect until Jan 1, 2009, ING Direct has decided to simulate it from now until the end of the year by paying you double the interest. As of Jan 1, 2009 they will automatically register a TFSA with the government for you (based on the early simulation account), and transfer up to $5000 from this early simulation into it.

I urge any of you with any money just sitting in a savings account somewhere, and you probably do since the equity markets are in turmoil, to consider opening your TFSA now. If you do it today, and fund it to the full $5000, expect a nice bonus interest payment on Dec. 31 of this year of about $35. Earning 6% on your money (as of today's rates) is pretty darn good and beats any GICs out there. I don't want to sound like a complete fan boy for ING Direct, I'm sure that there are similar offers at other progressive financial institutions too. Feel free to share by leaving a comment.

The $700 Billion Bailout

So let's say that they strike a deal and the government buys up all that bad paper. Then what? People still can't make the mortgage payments and the defaults continue? I don't understand why the lenders don't just renegotiate or freeze the interest rates to keep people from defaulting on their mortgages. Propagate the lower earnings from those mortgages up the food chain into the ABCP. Everybody ends up getting less, except the little guy ie. the homeowner gets to continue living in their home and make payments towards eventually owning it. Have the government issue coupons attached to the mortgages, the value of such coupons dropping each year. This allows both the homeowner and lending institution to be weaned out of the situation slowly. This also avoids needing to have all the $700 billion up front, apart from having to buy up enough of the currently worthless paper to keep the system afloat right now

Scary Financial Times

With the collapse of so many financial institutions looming in the US, and the Fed stepping in with $100 billion+ dollars of prop-up funding, one has to be very worried. The US is already running yearly deficits close to $500 billion, so this extra prop-up cash has to be coming from the printing presses (ie. from out of thin air) and/or via loans from other countries such as China. The Fed did not cut interest rates this week, so that tells me that they're likely worried about the printing presses fueling inflation.

Some people may see these times as a great buying opportunity, but I don't recommend trying to catch a falling knife. Wait until things settle out, and cross your fingers that they do. If you're looking for a decent GIC rate, ING Direct just came out with a 1.5 year GIC at 4%. I think it's a time limited promotional rate since it beats the rates on all their other GICs except for the 5 year which also has the same 4% rate.

Saving Money on Cell Phone Use in Canada

Since there's been a lot of hype recently in the cell phone market with the launch of the iPhone, I thought I'd point out an easy way to potentially save yourself a couple of hundred dollars on your cellphone bills every year. It essentially hinges on how much you use your phone and when. If you're a heavy user, just continue to regularly examine your cell phone use and shop around, assuming you're out of contract of course. If you're a light user, then consider using a pay as you go or prepaid plan. For example, I'm on Roger's Paygo. I use their virtually unadvertised $100 (+ tax) prepaid card, since it has 365 day expiry time. I'm also on their 1 cent evenings and weekends "plan" with it. This does last me an entire year. So I'm paying $8.33 (+ tax) a month for a cell service and it includes call display and optionally voicemail. If I put more money into the account before the time expires, it all rolls over into the next 365 days. They allow you to build it up to a maximum of $500 I think. Any Roger's phone can be turned into Roger's Paygo, once out of contract of course. They may even give you some free airtime to get you going.

I'm not running a Roger's commercial here, but they do use the technically superior GSM for their network. I wish we had another GSM competitor in this country. But there's also a few other reseller deals using Roger's network that are also very good value. The first is 7-11 stores, with their Speak Out Wireless offering. The second is Petro-Canada Mobility.

If you're stuck with no option but to use Bell's network, then please have a look at Virgin Mobile.

How Much Do You Spend on Coffee?

Starbucks has just announced that they're closing 600 locations in the US. While you might joke that this only represents one city block, it is actually significant and impacts a lot of their employees. When times start to get tough, people start to cut back on discretionary spending. But rather than deny themselves some of those simple pleasures, they tend to look for cheaper alternatives. Today I'd like you to take a moment and think about how much money you're dropping on coffee in the course of a work day. If you are spending $5 a day on coffee at work, then that's $100 a month. Over the course of a year, that's $1200. For many people, that's a week on a beach in Cuba.

You can make your own delicious cup of coffee quite cheaply. For example, a kilo can of Hills Brothers medium roast coffee is under $5 at Price Chopper. Use 18% cream (not 10% coffee cream) and you can have a cup that will be at least as good as Tim's if not better.

It's Almost Official: The Dow is now in a Bear Market

As reported Friday in the Globe and Mail here, the Dow has now fallen 20% past its peak. But it closed on Friday just above that mark, so while technically it is not the official start of a bear market, it is highly likely to happen this week. I remember being in Spain in March 1999 when the Dow first cracked the 10,000 mark. It is now going on close to ten years, and it only up about 10% from there. I do wonder how long this bear market is going to last, since the price of oil and the Iraq war are fueling inflation. Add in the subprime crisis, and it isn't looking good, at least for our largest trading partner. But there is speculation that our housing market is headed for a large correction as well. One has to wonder if there's enough foreign demand for our commodities to keep the TSX out of bear territory. I guess basically what I'm trying to say in today's posting is be very prudent with respect to your finances right now. Things aren't looking very rosy.

It's BBQ Season. Save Money on Propane

Here in Ottawa I notice a proliferation of places that sell "swap" propane BBQ tanks. The idea is that you simply drop off your empty tank and take a full one in its place. A lot of places have these tanks including many gas stations. They are stored outside of course, typically in a locked cage. Cost to swap your tank at one of these places is about $27. Cost to fill your tank instead of swapping it is about $16. That's a 70% premium folks! Many people think that once they have a swap tank, they have no choice but to go and swap it when they need a fill up. But many places will refill swap tanks, as long as the date stamp on it indicates that it is less than 10 years old, same restriction as any other tank.

Actively Managed Funds Continue to Lag

In today's Globe and Mail there is an article pointing out that fund managers continue to do poorly compared to index funds. There really isn't any reason to invest with active managers, and the data continues to support that. Of index funds, I personally like the TD Efunds due to their low MERs and green approach of not mailing out paper. Also the iShares exchange traded funds are extremely good value if your investing patterns cause the brokerage fees to not be an issue. ING's Streetwise Funds are ok too but they do have MERs close to double what they should be.

Buying a Desktop Computer? Save a lot of money.

Here in Canada, the best deal by far on a "new" desktop computer is a refurbished HP Media Center machine on sale. You cannot even build one yourself for less money. These HP machines also use solid good name brand components such as ASUS motherboards, and Seagate hard drives. By refurbished, they simply mean that the computer has had to go back to factory for some reason. If the box is simply opened in the store, then back it goes to factory for refurbishment. By factory, I mean an authorized outlet for examining/troubleshooting the machine. These machines are also current, meaning that they are not "lease returns" that have been used for a couple of years.

So where do you find such machines? Futureshop and Best Buy both carry them on a regular basis. But like I said earlier, wait for them to go on sale, where you can scoop one for less than half the price of new, saving you upwards of $500. Yes, it is well worth paying the shipping charges.

Also, the refurbished HP Pavilion and the Compaq machines are also good deals, but nothing beats the sheer value of those Media Center machines with their better graphics cards and hdtv tuners built in, and typically huge hard drives.

The only downside I see with buying refurbished is the shorter warranty period of 90 days. But misbehaving components usually show up within the first 30 days anyway. Also, HP should be using beefier power supplies in their machines.

Need Foreign Cash for a Trip?

We are entering the summer here in Canada (northern hemisphere to be correct) and it is the main travel season for many people. This travel is often far overseas, as much of the charter aircraft used for Caribbean travel are shifted instead to Europe. So you are headed overseas and need a few hundred dollars worth of foreign cash? Many people don't feel comfortable travelling without having some foreign cash on them. This is a prudent move, as you may have problems finding an atm that works with your bank card upon landing in the distant land. And then there are the service charges. Ten years ago I used bank machines in places such as Poland and Austria, and was only charged $2.20 per PLUS system transaction. Today, that same transaction will probably cost you between $5 and $10 dollars just in transaction fees. So much for technology making things cheaper. But of course these transaction costs are simply a bank gouge. They also get you on the exchange rates although those rates are usually pretty decent.

If you decide to bring a lot of foreign cash with you, please consider going to a foreign exchange place instead of your bank. Here in Ottawa we have Accu-Rate. They fairly consistently beat the bank exchange rates, and you can pay with your bank card as an interac direct payment. By going there, you can easily save $10-$20 or more depending on what you're buying and how much. Also, the foreign exchange place is likely to have the foreign notes that you're looking for. The banks only carry a small selection and it is not uncommon for small branches to run out of the popular currencies such as Euros.

To somerize, all I'm trying to say is do shop around a bit, as most of these places including the banks do post their rates and update them throughout the day. If you spend 20 minutes online and find a $20 saving, then your time was well spent at $60 per hour, as long as you don't have to drive a long way to the establishment. Also ask your friends and coworkers if they have any favourite place to exchange money. Sometimes friends have some foreign cash that they haven't exchanged yet and are willing to give you a good deal. You can both win on such transactions as the buy/sell spread is usually a few percent.