Personal Finance

The advantages of a LOC over a Chequing account

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  • Jan 24th, 2014 2:36 pm
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Nov 18, 2008
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The advantages of a LOC over a Chequing account

As some of you all know, I am a huge advocate of using a LOC as a Chequing account by running it in a positive balance. It's much better than your regular Chequing account in so many ways, and I will list the reasons below:

Unfortunately, I only know this applies to CIBC, TD, Scotiabank and PCF. I'm not sure about BMO and RBC is a definite no.

1. Free transactions: That's right, you can get unlimited transactions at a B&M bank. You can put the LOC on the Chequing or Savings button and use it at the ATM like you would any Chequing account. You can use debit (I don't advocate this), pay bills, receive and send preauthorized payments, write cheques, send EMTs, get money orders all from this account like any chequing account. All for no monthly fee.

2. Free Cheques: If you're with PCF this is not an issue. But if you're with a B&M bank, you will easily pay $35 for 100 cheques. Again, cheques are totally free with the LOC at CIBC, TD and Scotiabank. They look exactly like regular cheques, there is nothing there to indicate it was from a LOC account. CIBC sends you 20 duplicates at a time which I think is good as I don't need to use cheques too often.

3. Cheap Overdraft: This is one of the biggest advantages as well. For a regular bank account, you are paying upwards of 19% interest when you use your overdraft. You probably also pay a per-item fee or monthly fee to have the privilege of using money at 19%. If you have tight cashflow, and don't keep much in your Chequing account, $5 fees will add up over time (but it's still cheaper than NSF). When you go "overdraft" with the LOC, you pay nothing but the interest (which is P+X) and no per-item fee.

4. Better holding terms: If your deposit hold limits are not that good because you are a new customer, LOC is also a great way to get around those holds. You will have access to whatever your credit limit is immediately (let's say $20,000) and you have a $20,000 cheque to deposit but you want to use it right away and can't wait 5 days. If the bank holds all your deposit, you can just deposit the cheque into the LOC and transfer the money back out immediately. What you have just done is replace the credit limit with a held cheque, you have not borrowed any money, but your available balance in the LOC will be $0 until your cheque clears a few days later. Not to mention if the cheque is bad, it reverses inside the LOC and your account will be -$20,000 but that's okay with the bank as it will be like you borrowed $20K for the few days and you only pay the interest rate on your LOC. With a regular chequing account if the cheque goes bad your account goes into unauthorized overdraft and you are paying 19% interest. Even if your deposit holding limits are high, depositing to LOC will leave you a lot less liable for depositing bad cheques.

Of course there are some limitations:
- Not everyone can get a LOC, if you do not have the income nor credit score
- If you go to the teller, they may not like seeing the LOC in a positive balance (TD sometimes is not cool with this, but CIBC is)
- If you plan to use it as a chequing account with a positive balance and not borrow any money from it, the interest rate does not matter. It's only when you use the "overdraft" will the rate matter but it will always end up cheaper than your regular bank account.
76 replies
Member
Mar 27, 2009
264 posts
48 upvotes
Nice thread. You should include more details regarding the individual bank offerings.

For example, I have a question: Is Scotiabank's LOC also linked to a Scotialine Visa? If so, that would mean that you can essentially access your "no-fee chequing account" with a Visa card, as well as cheques and a client card. That would be pretty cool. Or is a Scotialine Visa a totally separate product from a Scotia Line of Credit?
Member
Mar 30, 2009
374 posts
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Toronto
PaterFamilias wrote:
Apr 28th, 2009 6:43 pm
Nice thread. You should include more details regarding the individual bank offerings.

For example, I have a question: Is Scotiabank's LOC also linked to a Scotialine Visa? If so, that would mean that you can essentially access your "no-fee chequing account" with a Visa card, as well as cheques and a client card. That would be pretty cool. Or is a Scotialine Visa a totally separate product from a Scotia Line of Credit?
From what I'm seeing on their site, ScotiaLine Personal LOC and ScotiaLine Visa are 2 different types of LOC accounts. The former behaves like a chequing account and the latter behaves like a credit card with no grace period and no cash advance fees. So you would probably want the former for a no fee chequing account, but I'm not 100% on that so it might be best to talk to the bank.
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Jan 22, 2008
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Calgary
Thanks for this thread tng. This is the kind of thread i should have opened when i was looking for a bank to open an account for loc. Of all the banks i had to open, I did it with rbc, the bank that dies nor allow locs be used as chequing. Damn
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May 31, 2007
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I have $30k from my LOC in the stock market. A risky venture, but let's just say I'm very glad I did it.
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Rudee wrote:
Apr 28th, 2009 8:21 pm
I have $30k from my LOC in the stock market. A risky venture, but let's just say I'm very glad I did it.
I hope it was a secured line of credit because after taxes, your profits could vanish.
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Sep 19, 2004
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+1 for TD LOC

For TD, one disadvantage though is that there is no "paperless" option as it is a CREDIT account, and therefore there is no "free" View Cheque Image available ($1.50 per viewing instead)
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tophomeloans wrote:
Apr 28th, 2009 8:23 pm
I hope it was a secured line of credit because after taxes, your profits could vanish.
My LOC rate is very good. My investments are equities, which are taxed as capital gains. My gains thus far (thanks mostly to the market rally that began in beginning of March) have been over 30%. Paying only the minimum monthly interest amount at this point. I'm doing what the banks traditionally do when you give them your money - invest it in something with a far greater return.
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Mar 23, 2004
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Markham
Very good thread, period.
jerryhung wrote:
Apr 28th, 2009 9:04 pm
+1 for TD LOC

For TD, one disadvantage though is that there is no "paperless" option as it is a CREDIT account, and therefore there is no "free" View Cheque Image available ($1.50 per viewing instead)
well as long as it doesnt cost anything for a statement. But sucks there is no way to bypass the view cheque cost.
「もし、奇跡を起こせたら……」
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Oct 2, 2005
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thanks.
the transaction fee cost me a lot for using checking account. although i pay about $5 a month, but i prefer free of charge.

i didn't realize i dont have to pay transaction fee for using loc.
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Dec 17, 2008
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CIBC allows Cheque viewing for FREE on their LOC
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Apr 11, 2004
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Come tax day on thursday, I'm gonna luv me my LLC
Why is nobody on RFD accountable for their actions???
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Aug 18, 2005
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Thanks for this, it will be useful to refer news to this thread.
What if there were no hypothetical questions?
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May 13, 2005
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I think you have to change the title to compare the LOC with the free chequing account...

If you compare the LOC with the TD Select Service chequing account, then you will see the TD Select Service chequing account will give you way more advantage compare to LOC...
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tophomeloans wrote:
Apr 28th, 2009 8:23 pm
I hope it was a secured line of credit because after taxes, your profits could vanish.
Just to put it into prospective. That $30k of borrowed money from my LOC that I put into the stock market appreciated by $12k in a little over 8 weeks. Interest owed for that 8 week period was about $240.

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