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An ING Direct cafe in Vancouver

Savers looking for high interest options now that Royal Bank of Canada is shutting down the high-rate accounts it acquired in the purchase of Ally can switch to Bank of Nova Scotia-owned ING Bank with no fear.

ING quickly sent out tweets trying to lure grumpy Ally customers with a special offer. Anyone taking ING up on the offer should have no worries that ING will similarly end its high rate business now that Scotia is in charge.

On the surface, there's an easy link to draw from RBC backing off high interest accounts after buying Ally to Scotia perhaps doing the same with ING.

The storylines start the same way: Big Canadian bank purchases rival that had competed using high interest to draw funds.

But underneath, the rationales for the purchase were very different, and therefore ING's higher rates look safer than Ally's.

When banks look at purchases, one way to think of them is asset or funding purchases. ING was a funding-driven purchase for Scotia. The bank had a low ratio of deposits, one of the safest ways of funding, to loans. A large portion of Scotia's funding came from wholesale markets outside Canada, which can be much more fickle and dry up at inconvenient times. Hence, Scotia is not likely to do anything to jeopardize all the deposits at ING. That is why the bank has consistently said reassuring things about not changing the ING business model, right from the first day of the purchase. Scotia needs those deposits, and paid up to get them.

One analyst reckoned before the ING purchase that Scotia got 36 per cent of its funding in foreign currency wholesale markets when he looked at the figures, the most of all the big banks.

For RBC, Ally was an asset purchase. RBC wanted the other side of Ally's balance sheet, the auto loans, and the loan origination machinery that Ally came with, as stories at the time pointed out.

Ally didn't have the same breadth of options that RBC has, and needed to offer high interest savings accounts to fund its auto loans. RBC had plenty of funding from other sources, at lower costs.

It's instructive to go back and read the original RBC press release, which mentioned the word deposit exactly once.

That should have been a signal.

Consumers are going to be upset that a high-interest option has disappeared from the market for savers. If there's an offset, it should be that RBC will be more competitive on auto lending rates than Ally could have been, because lower funding costs will enable lower cost loans.

(Boyd Erman is a Globe and Mail Capital Markets Reporter & Streetwise Columnist.)

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 10:01am EDT.

SymbolName% changeLast
BNS-N
Bank of Nova Scotia
+0.51%51.42
BNS-T
Bank of Nova Scotia
+0.56%69.81
RY-N
Royal Bank of Canada
+0.25%100.65
RY-T
Royal Bank of Canada
+0.15%136.44

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