The economy simply will not co-operate in generating the sparks needed to move interest rates higher.
And yet, the biggest personal finance story of the moment is a war in which a fascinating collection of financial players are fighting over who can offer the highest rates on savings and chequing accounts.
EQ Bank has just increased the rate on its savings account to 2.45 per cent from 2.3 per cent, enough to edge out the 2.4-per-cent rate announced earlier in the week by the robo-adviser Wealthsimple for a new no-fee account called Wealthsimple Cash. Think of Wealthsimple Cash as a hybrid saving-spending account that you will be able to access by ATM and use for debit purchases and bill payments.
LBC Digital, the online division of tiny Laurentian Bank of Canada, launched a savings account last fall with a show-stopping rate of 3.3 per cent. Previously, the best rate in savings might have been Motive Financial’s Savvy Savings Account at 2.8 per cent.
Notice anything about this rate war? All the combatants are outsiders trying to win business away from the big banks, which continue to exploit the complacency of their clients by offering savings rates in the rough 1-per-cent range. In a low-rate world, there’s no better way for a financial firm to attract both attention and customers than offering an eye-catching interest rate.
If you want to see more competition on rates for savers, start rewarding these feisty upstarts for their efforts. Show them that you can be pried away from your big bank if the offer is good enough.
The overall interest rate outlook right now suggests a bias toward lower rates. Bank of Canada Governor Stephen Poloz signalled earlier this week that a rate cut is possible if the weak economic growth of late last year and early 2020 continues. For that reason, you have to recognize the possibility that today’s competitive savings account rates could slip back at some point.
Some banks have already lowered their rate on savings. Tangerine, the online bank owned by Bank of Nova Scotia, cut the return on its savings account to 1.05 per cent on Jan. 7 from 1.1 per cent. A new-ish online player called motusbank now offers 2.1 per cent on its savings account, down from the 2.25 per cent offered when it launched last spring.
Wealthsimple describes its 2.4-per-cent rate as “non-promotional.” Craig Backman, Laurentian’s executive vice-president of personal digital banking, told me in November that the 3.3 per cent “is not meant as an introductory rate.” But let’s be realistic – these rates are high by today’s standards.
A five-year bond issued by the federal government has a yield these days of about 1.5 per cent, and the best rate on a widely available five-year guaranteed investment certificate seems to be 2.9 per cent. Getting 2.4 per cent, never mind 3.3 per cent, is a pretty great deal when you consider that you can access the money at any time with no penalties.
The unique thing about Wealthsimple Cash is that it gives you a high rate of interest on an account you can use for everyday transactions (no chequing, though). Features to be introduced soon include reimbursement of fees from using ATMs and no foreign transaction fees worldwide. Also coming is a client card made of the metal tungsten. With several high profile credit card issuers now offering the heavier metal cards, this alone will win customers.
EQ’s savings account doesn’t offer debits or ATM withdrawals, but you can use it to pay bills and send e-transfers at no cost. Laurentian’s savings account can be partnered with a no-fee online chequing account that includes unlimited debits and e-transfers.
Worried that money is not as safe with these alternative banking options as it is with a big bank? Deposits at EQ, Laurentian, Motive and motusbank are covered by the Canada Deposit Insurance Corp. for up to $100,000 for every eligible account. Wealthsimple Cash is not covered by CDIC.
There’s a business case in banking right now for cutting interest rates on savings, or at least holding the line. We are fortunate to see some financial firms doing the opposite. Don’t let the opportunity to boost the return on your savings slip away.
Editor’s note: Wealthsimple Cash is not covered by the Canada Deposit Insurance Corp. A reference to the Canadian Investor Protection Fund (CIFP) in an earlier version of this article has been removed.
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Rob Carrick