There has been a crack in the steely resolve of the big banks not to offer a competitive rate of interest on savings accounts.
Bank of Nova Scotia was set to introduce a new online savings account on Thursday that pays a regular interest rate of 0.7 per cent and a premium of between 0.75 per cent and 0.9 per cent if you leave your money untouched for a certain period of time. These rates are good, not great, in the broad banking universe. Among the Big Six banks themselves, they're excellent.
Stay alert for more developments like this in the banking business in the months to come. We are seeing an unusual number of client-friendly improvements coming from the banks in the normally dull area of chequing and savings accounts.
The no-fee Scotiabank MomentumPlus Savings Account claims to be innovative in allowing people to save for multiple goals in one account. Customers pick a savings period for their various goals, which determines their rate. Interest on the base rate of 0.7 per cent is paid on a monthly basis and the premium money is paid if no withdrawals are made for the specified period.
The new account is a way to offer value to customers at a time when interest rates remain low, said Mike Henry, Scotiabank's executive vice-president of retail payments, deposits and unsecured lending. The bank regards MomentumPlus as being so original that it is seeking a patent.
"We have created a single account that lets a customer pick up to five different goals and time periods to save for things, all within the convenience and simplicity of that one account," Mr. Henry said. "The longer people save, the more interest people earn."
You could earn more with comparable simplicity by opening an account at Alterna Bank, EQ Bank or Zag Bank, where you can get rates between 1.65 per cent and 2.3 per cent on all your savings. If you have multiple goals, open multiple accounts and give them nicknames to help you organize your money.
But most people won't try these alternative banks, even though they're all members of Canada Deposit Insurance Corp.
CDIC protects deposits in eligible accounts for up to $100,000 in principal and interest. If you're part of the majority that prefers the big bank brand, then Scotiabank MomentumPlus is a category killer in savings accounts.
Check out the competition – most big banks pay no more than 0.65 per cent on their savings accounts and sometimes nothing until your balance exceeds $5,000.
Bank of Montreal's Savings Builder Account pays up to 1.2 per cent, but you have to deposit $200 or more each month to get the top rate; otherwise, you get 0.2 per cent.
The most interesting comparison for Scotiabank MomentumPlus has to be the savings account offered by Tangerine, Scotiabank's online banking division. Tangerine pays a flat 0.9 per cent, although temporary rate bonuses are made available from time to time.
Unless Tangerine ups its game, the MomentumPlus account might be a better choice for long-term savings.
There's pressure on Tangerine because its main competitor in online banking, President's Choice Financial, will be rebranded in November under the name Simplii. PC Financial was a co-venture between Canadian Imperial Bank of Commerce and the Loblaw supermarket chain, while Simplii will be controlled by CIBC alone.
Mr. Henry said Tangerine is for people who want to bank digitally – online and via apps – while Scotiabank offers the flexibility of using a branch or digital banking. But the distinctions between what the big banks and their online competitors are doing is starting to blur.
For example, Royal Bank of Canada recently introduced a perk offered by the alternative lenders Borrowell and Mogo – showing clients their credit scores at no cost online. BMO is running what it calls an exclusive online offer providing unlimited transactions of many types (including e-transfers) at no cost as long as you keep a savings account open and, on a monthly basis, buy something on your credit card and deposit at least $1,5000 into your chequing account (your paycheque will do).
The consulting firm McVay and Associates says the alternative banks it tracks have a share of the market of around 5 per cent. They're a small slice of the market, but obviously influential. The big banks are innovating like never before, and one is even offering a decent rate on savings.