Financial Crooks

Should I Get a Personal Line of Credit as an Emergency Fund?

I see people asking this question a lot on financial chat lists. They have been offered a personal line of credit and they ask whether they should accept the offer or if the rate is good enough.

Personally, I don’t see why most people should accept a personal line of credit. What’s the advantage of having another potential source of debt?

But then, I don’t believe most people should make purchases using credit unless they are for exceptionally expensive items like a house, or unless it’s just as a convenience and they will pay the cost in full when the credit card bill arrives. I believe you should save up for that home renovation, new-to-you car, electronic wonder, or vacation trip.

When you save up in advance, *you* get the benefit on the interest on the money: it helps pay for your purchase. When you buy on credit, you lose because you have to pay the lender interest as well as the cost of the item.

And no, I don’t think having a loan from an institution is a substitute for having a true emergency fund. The last thing you want in an emergency is to incur more debt AND have to pay interest on that debt. Set money aside ahead of time to cover emergency expenses. Or figure out who among your friends and relatives could be trusted to help you get through an emergency.

Is It a Coincidence That I Got a LOC Letter Just After Using my BMO Mastercard?

I found the timing of this LOC offer interesting. I’ve never had an offer of a LOC from BMO before, despite having a bank account with them since I was attending university. So why did I get this letter now?

My suspicion is it’s because I used my Mastercard several times in the last year after not using it for a decade.

I’m doubly suspicious because the amount of the PLOC is the same as the credit limit on my BMO Mastercard.

Why Would BMO Offer Me a Line of Credit With a Lower Annual Interest Rate?

I’m not interested in having a line of credit, so I will be shredding this letter from BMO. But I wondered to myself why they would even offer me a loan at their “competitive rate” of 7.2% when my Mastercard has a rate of 17.5%. Wouldn’t they make more money if I had to pay them 17.5% on an outstanding balance than 7.2%.

Then I remembered something I read in the Globe and Mail. The writer said that many people think they will get out of credit card debt by getting a loan, usually a home equity line of credit. But as soon as they pay off the credit card with the HELOC, they start using it again. And before they know it, they have used up the credit limit on their HELOC *and* the credit limit on their credit card. And the bank then makes high interest off the HELOC and even higher interest off the credit card. Double your debt: double their profits.

Is that the strategy behind this BMO offer? I’ll never know. But if it is, they’ll be disappointed in me. I’m still paying off my credit card each time the bill arrives. And I’m not getting a line of credit. And I’ve got an emergency fund that could last me over a year, if I needed it to.

Sorry BMO.

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Do you have a personal line of credit? Do you use it as a chequing account and never pay more than a few dollars of interest? Why do you find a LOC useful? Please share your views with a comment.

As January slides quickly down the melting ice bank towards February, it’s time for me to start gathering up our T5 slips to do our taxes. One of the drawbacks of having bank accounts at many financial institutions is I have to remember to get our tax slips from each—luckily we made so much interest from various promotions at these three banks they all issued us a T5 so we don’t need to add up our monthly interest income. Here’s how I got our T5s for our 2018 tax return from EQ Bank, Simplii Financial (formerly PC Financial) and Tangerine.

How to Print a T5 for a Tangerine Chequing or Savings Account

Although we earned enough interest from our Savings account to get a T5, we didn’t earn enough from our chequing account. So I thought I’d have to add up the interest month-by-month. I was wrong! Tangerine included the interest from our chequing account and our savings accounts all on the same T5.

Sign in to your Tangerine accounts.
Click on your name in the upper right side of the screen to see the drop-down menu list.
Select Documents.
On the Documents page, from the horizontal menu near the top, click on Tax Receipts.
The most current tax year receipts will be displayed.
If you want, you can change the year by selecting another year from the drop-down list.
Click on the link, T5 – Interest earned
Click on the link again T5 – Interest earned
Your T5 will be a 2-sided document so you may want to print it using a 2-sided option if you have one.
Print your T5.
Click on the Done button.
If you are finished banking, click on your name, then click on Log Out.
For extra security, clear your browser history and cache and close your browser session.

How Do I Get a T5 for my US Dollar Savings Account at Tangerine?

If you have earned more than $50 in your savings and chequing accounts at Tangerine, the interest earned on your US dollar account will be included in your T5. If not, you will have to add up the payments yourself, and then use an approved conversion rate from the Bank of Canada to calculate the amount in Canadian dollars to report on your income tax return.

How Does Tangerine Convert My US Dollar Interest to Canadian Dollars for my Tax Slip, T5?

According to the Tangerine website in 2018 the interest “is converted to Canadian dollars at an average annual conversion rate set by the Bank of Canada.”

Luckily, since that’s what I do, too, I won’t have to re-calculate the interest.

How Do I Check How Much Interest I Earned Last Year On My Tangerine Account?

If you don’t get a T5, you still have to report the interest you earned on a bank account on your tax return. And even if you did get a T5, you may need to know how much interest you earned on a specific account if you have, say, two savings accounts and one of them you should claim and one your spouse should claim.

To check what an account earned:

Sign in to your Tangerine accounts.
Click on the name of the account you are interested in.
There is a horizontal bar of links, click on the one called Account Details.
Near the right side of the screen is a section called Interest Earned.
You can get the total amount earned by that account from the row: Previous Year
If you are finished banking, click on your name, then click on Log Out.
For extra security, clear your browser history and cache and close your browser session.

Why Does My Tangerine T5 Report More Interest Than If I Add Up the Amounts from My Previous Years?

Watch out for one quirk: if you have a savings account, say a Vacation Savings account, that you close part way through the year, you may forget you have to add in the interest from that account also to get the total on your T5. The only way to double check the interest earned by a closed account is to look through your old monthly statements.

How to Get Your 2017 T5 Tax Slip from EQ Bank

Sign in to your EQ Bank Accounts.
From the horizontal list of links across the top, click on Accounts.
Click on Tax Documents.
Strangely, it does NOT default to showing me my most recent tax slip. Instead, I have to click on the drop-down list and choose 2017 – T5
Click on the Generate Document button.
It says you will get one T5 for the interest earned on all of your accounts.
Click on the Print or save button.
If you are finished banking, click on your name, and select Sign Out.
For extra security, clear your browser history and cache and close your browser session.

How to Get Your 2017 T5 Tax Slip from Simplii Financial

Well, it seems CIBC has taken full control of PC Financial and re-named it Simplii Financial but a few things have not changed. So far, as at January 24, 2018, you can’t get your T5 for interest earned by your Simplii accounts online. I’ll have to wait for it to arrive via Canada Post.

I expect this will change either later this year or next, though. Mailing out forms usually costs banks more money than providing them online to be downloaded and printed by the customer.

So now I will have to gather up all of my tax slips and calculate how much interest my husband and I need to claim on our tax returns. The interest has to be paid by the person who owns the money so it’s not always straight forward for us. I’ll sort it out by April 30 though!