What is the ING Direct Refer a Friend Program?

For a relatively long time now ING Direct Canada has been offering a program to encourage their current customers to get people they know, whether friends, family or associates, to sign up for an account.

The program essentially gives both the person referring and the person being referred a small bonus as long as a certain minimal deposit amount.

The deposit:

Currently this minimum amount is $100 and can be deposited into any type of account with ING Direct.  This includes pretty much any account that ING offers whether it be RSP, TFSA or regular.

The reward/bonus:

While in the past the values of the referral bonus has varied a bit, typically $13 but the program has been cancelled at times and was $0 for a while.  Currently the reward is $25 for each the referrer and the person signing up.

According to ING Canada you are supposed to get the bonus within 24hrs of depositing the minimal $100 into your account.  Note the distinction between 24hrs from opening your account and 24hrs from depositing the money.  As the typical manner of depositing the money is a check in the mail this of course will likely be more then just one day and could be as much as a few weeks depending on how fast postal mail takes your check to Toronto.

Signing up & actually getting the bonus:

All this information is great, however I have left out one important part, how does ING Direct know that you have been referred to sign up for the account and hence how do you get the money for being referred?

Well, put when you are referred you should be given a referral code which ING calls an Orange Key.  How you get this key is relatively unimportant to them just as long as you use it when you sign up.

It is of course important to include the referral code when you sign up for whatever account you have chosen.  Without the code you will not be able to get the bonus money.

Getting the referral code or Orange Key:

As already stated as far as ING is concerned it doesn’t really matter where you get the code just as long as you use it when sign up.  In fact they’d probably prefer that you didn’t use it when you sign up since it would save them money.

So where do you find a code?

Well maybe you have a friend that is already an ING Direct customer and as such would love to share their Orange Key with you.

Short of that you can of course search the internet for one as there are plenty of people out there who are posting theirs in various places all over the internet.  A word of caution with doing that is simply that the ones you might find may no longer be valid so just be sure that the number has been posted relatively recently.

You could of course use the one I have posted here (34908230S1), which I know is valid since I do find my account getting the bonus from time to time.  As you may guess this is my preference, but feel free to do however you like.

Conclusion:

While I wouldn’t necessarily say that everyone should just go out and sign up with ING Direct Canada just because they can get $25 when the do it.  I would say that if you are planning on doing so I would make certain that I had valid Orange Key since there certainly is no harm in getting yourself an extra bit of money.

Tax Free Savings Account (TFSA)

For those that are unaware of it starting on January 1, 2009 the government of Canada started a new legal tax shelter program called the Tax Free Savings Account (TFSA for short).  This essentially is an account that allows you to invest your money without having to pay taxes on any gains (such as interest) that you might make in the account.

There are of course a few stipulations:

• you are limited to $5000 of investment per year
• once you take money out you cannot replace it
• you still pay taxes on the money you put in

Sounds pretty simple but there are some questions I think you may have including:

• How does it save me money?
• Why is it better then an RSP?
• How can I invest my money in a TFSA?

How does it save me money?

Let me explain with a bit of math (sorry but it’s necessary when dealing with money).  So we will start with maximum yearly investment of $5,000.

Let us assume you pay 20% income tax and that when you take your money out you’ve doubled your investment.  So now you have an additional $5,000 in the account.

If this investment was done in a TFSA you will end up keeping the entire $10,000.

However, if you had invested this in a normal savings account you would have to pay 20% of your increase to the government so you would only have $9,000.  Actually, because of compound interest and you having to pay taxes yearly you probably would only have $8,500.

In short by investing in a TFSA you would have saved over $1,500.

Why is it better then a Retirement Savings Plan (RSP)?

First let me explain the main difference between a TFSA and an RSP.  With a TFSA you pay taxes on the money you put into the account but you don’t when you take it out.  With an RSP you do not pay taxes when you put money in but you do when you take it out.

What this means is that as long as you have more money when you take it out and your tax rate has not substantially dropped you will get to keep more in the end with a TFSA.

Let me illustrate, going back to our example above where we invested $5,000 and ended up with $10,000.

With the TFSA that wasn’t actually the whole story.  Before you invested $5,000 you actually paid $1,000 in taxes (assuming still our 20% tax rate).  Which means you paid $6,000 for the $10,000 you ended up with.

With an RSP you could have invested the whole $6,000 from the start and (assuming the same gains) ended with $12,000.  However, now you would have to pay your 20% tax leaving you with $9,600.  And this is of course assuming that you can invest $6,000 into an RSP without penalties.

So with a TFSA you even though you pay a bit more up front in the end you have $400 more in your pocket. (RSP:$9,600 TFSA:$10,000).

How can I invest in a TFSA?

I think there has been a bit of confusion with how you can invest money once it is in a TFSA.  Many banks especially at the start of the year were only offering to put your money strictly in a savings account (as per the name) which let’s be honest doesn’t really offer much in the way of interest.

You can think of a TFSA very much in the same way as an RSP account.  As such you can invest however you like GIC, savings account, mutual fund, stocks etc.  The only limitation is really that given by the bank you are dealing with if they don’t offer the TFSA investment mechanism that you like then I suggest you go elsewhere.

Put simply as long as the money remains in the TFSA it really doesn’t matter how you invest it.

Using online banks

People have been turning to online banks for years as a way save themselves money from banking fees.  It is as well as a way to get a better return on their deposits then they can get from traditional banks.  However, there have been some people who have transitioned from the traditional banks only to later regret it when they discover that some services they took for granted are not available with their new bank.

Questions you may want answered before making the switch likely include:

• What services can I expect from an online bank?
• How do online banks save me money?
• Why doesn’t everyone use online banks?

What services can I expect from an online bank?

In general an online (or discount) bank provides most of the basic services that traditional banks offer as well.  Essentially this means that you can both deposit and borrow money from these banks, how this is performed and the portfolio of services offered varies greatly between online banks.

The first and standard service offered is typically a high interest savings account, the actual interest rate can vary between different banks but you are more or less guaranteed a rate much higher then any traditional bank.

Next are low interest loans which is effectively the counterpart to the savings account.  The reason why these banks can offer these services is because they have a low overhead having effectively no physical presence in the “real” world.

Other services that you might find include chequing accounts, mutual funds, and credit cards.  This may seem like an exhaustive list but for some it may not cover all their needs.

How do online banks save me money?

Unlike your traditional banks, online ones do not have a significant presence in the physical world.  This alone difference allows them to offer services at a substantially discounted rate.

Typically, you will not pay any fees for any services offered by online banks.  With this said there are some cases where they will charge for some services such as non-sufficient funds (NSF) fees or fees for using ATMs outside your network.

The next way is that these banks also offer better interest rates then other banks.   This means you get a higher interest on your deposits and you pay a lower rate on your loans from them.  Again, this is effectively due to the bank passing on their savings on to you for not have any (or many) branches.

Why doesn’t everyone use online banks?

The big one would be because they want to be able to talk to someone face to face.  Although some do have a handful of locations to talk to someone they are typically either not very convenient or not common.  Examples includes PC has locations in Loblaws (and subsidiary) stores, and ING has a couple in a few major cities.

There are also other reason too:

• perhaps you want to have an add-on trading account
• maybe you want to travel overseas and use ATMs there
• you need a chequing account
• etc

And then there’s just the comfort factor in knowing that there is a physical bank to got to if you wanted.  Although I believe the fear of dealing with companies without ever seeing them is going away I think this probably remains a common factor.