Savers rejoice! We’re in the midst of a high interest savings war. The battle for your business isn’t being fought by the big banks, but by upstart FinTech companies looking to build up deposits. Indeed, the big five have mostly ignored the high interest savings account market. Why bother, when they’re hauling in record profits elsewhere?
That meant savvy savers had to look elsewhere to stash their cash and keep ahead of inflation.
LBC Digital
The first shot was fired several months ago when the relatively unknown LBC Digital (an offshoot of Laurentian Bank) started promoting its high interest savings account that pays 3.3 per cent with no minimum balance required and no monthly fees.
That kind of interest rate was sure to draw wide-spread attention, but the sign-up process and user experience has been clunky at best. LBC also must have been getting some high-roller deposits because they recently changed to a tiered structure that pays 3.3 per cent on balances up to $500,000 and 1.25 per cent on balances above that threshold.
Time will tell whether the 3.3 per cent interest rate is here to stay. Colour me skeptical.
Shades of EQ Bank’s launch four years ago, I thought. Back in 2016, EQ Bank burst on the scene offering a chequing / savings account hybrid that paid a whopping 3 per cent interest. Deposits flooded in, and EQ Bank had to temporarily halt new account sign ups until it sorted out its back-end procedures. The 3 per cent rate didn’t last long, settling in at a still competitive 2.3 per cent everyday interest.
Wealthsimple Cash
Next to make a splash was the always creative and customer-centric Wealthsimple. In January, the company best known as Canada’s top robo advisor announced a new product – Wealthsimple Cash – a saving and spending account that pays an eye-opening 2.4 per cent interest.
Wealthsimple Cash has no monthly account fees or low balance fees. But it’s the ‘coming soon’ features that have people talking. A prepaid Visa card called the Wealthsimple Cash card will allow clients to make purchases from their account like a debit card (anywhere Visa is accepted). Clients will also soon be able to withdraw cash from ATMs across Canada, send e-Transfers, and pay bills. There’s also a promise of no foreign exchange transaction fees coming soon. The Cash card will even be made out of Tungsten metal.
noticed a lot of confusion about whether Wealthsimple Cash deposits were covered by CDIC (they’re not). Funds are actually protected by CIPF (Canadian Investor Protection Fund) coverage through ShareOwner, Wealthsimple’s custodial broker.
EQ Bank
Not to be outdone, EQ Bank surprised everyone when it announced that its everyday rate of 2.3 per cent got bumped up to 2.45 per cent. The EQ Bank Savings Plus Account has no minimum balance, no banking fees, plus unlimited e-Transfers, bill payments, and EFTs.
Accounts are limited to a $200,000 maximum per customer. All deposits at EQ Bank are also eligible for CDIC deposit insurance.
Tangerine and Simplii
Once thought of as the pioneers of no-fee banking and high interest savings, Tangerine and Simplii (formerly PC Financial) have fallen behind these young upstarts. Both offer a pathetic 1.05 per cent on their high interest savings accounts.
Their go-to acquisition strategy is to offer teaser rates for 3-6 months before the interest rate drops back down to 1.05 per cent. The current promotion has Tangerine offering 2.75 per cent for five months, while Simplii is offering 2.8 per cent until May 20.
The Globe and Mail’s Rob Carrick also weighed in on the savings account interest rate war, led by these feisty FinTech upstarts.
In addition to running the Boomer & Echo website, Robb Engen is a fee-only financial planner. This article originally ran on his site on Jan. 25, 2020 and is republished here with his permission.
