2.3.1 Case study: Convenient but expensive

Pauline was in a hurry. She wanted to pay her electricity bill, but there was not enough money in her chequing account. "I've got my paycheque," she thought, "but my bank always holds it until it clears before they let me cash it."

Looking around, she noticed the sign over the Cash-It instant cheque-cashing store: "No holds! No waits!"

"That would be much handier than my bank," she thought.

She lined up in the store and began to fill in the forms the clerk gave her. The store wanted two pieces of photo identification (ID) and the clerk said they would have to verify the cheque. There would be a fee to set up a file and a fee to verify the cheque. And, the clerk said, there would be a fee of three percent for the cashing service. In all, the cost would come to $47.50.

"Over $45 to cash a $600 cheque!" Pauline said. "That's too much."

It would be cheaper next time, the clerk explained, because there would be no account fee.

"No deal," said Pauline. "I can get a cash advance on my credit card much cheaper than that."

Later, Pauline told a friend about the charges. Her friend said that, because her employer deposits her paycheque directly to her account, her financial institution does not hold back the deposit.

Lessons Pauline learned:

• A cheque-cashing service is sometimes convenient, but there may be many service fees that add to the costs.
• Check the costs for financial services before you use them.
• Compare the costs of different financial services and choose the best one for your needs.
• Speak with your financial institution about any alternatives, such as payroll deposit.