The Battle with your Financial Institution

Feb 13, 2010
Tahnya Parachuk

The Financial Struggle

Both of these rules are good pieces of investment advice, especially when they are combined together. In life people have to pick their battles and honestly in the case of Single Investor vs. Major financial institution the jury always sides with the defendant.

The only thing that matters to a major financial institution is always going to be the bottom line. Yes, they do appreciate a clients business. But, at the end of the day the institution knows that not many people are willing to withdraw all of their money and close all of their accounts because one institution offered them a promotional free toaster and the other one didn’t.

GC Interest Rates

Investors should keep this in mind when they want to invest in a new Guaranteed Investment Certificate (GIC) or Term Deposit. Of course there is a posted rate and a breakeven rate. The posted rate is a public rate posted on a website or sign in the branch. It is the bare minimum that the institution will offer. The break even rate is the maximum rate that the institution can offer before the deal puts them into the “red zone”. Institutions rarely go up to this rate and they never disclose this rate to clients. The first rule of good investing with a major financial corporation (as well as good negotiating in general) is never accept the first offer.

Negotiating Rates

Institutions expect you to negotiate a little bit and therefore they always start with their posted rate and follow up with a special offer. As an example “Mr. Client as you can see here on our website the base rate is 1.0% but because you are a good client I can offer you 1.25%”. This is a tactic that institutions use to make their clients feel appreciated. It is a small gesture but most of the time very effective.

The second rate is usually a good offer. Before clients come into their branch the financial advisor has reviewed their portfolio along with their clients’ total assets and liabilities. This is all taken into consideration when negotiating GIC and TD rates. Of course it is not like the days of the 1950’s when who you know and what you have is the only thing that counts. Nowadays financial institutions are much more strict on deposit rate negations. Everything is streamlined nationwide and everyone has the same posted and breakeven rates.

However, what you have and who you know does have a little bit of an effect on your negotiated rate. So use it to your advantage but know when to stop. Don’t drive your financial advisor crazy while you try to negotiate .10 more interest for your GIC or TD. Sometimes negotiations are about winning but sometimes they are just about getting the best that you can. Please pick your battles.