Weekend Reading: High Interest Savings War Edition

Weekend Reading: High Interest Savings War Edition

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 percent 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 percent on balances up to $500,000 and 1.25 percent on balances above that threshold.

Time will tell whether the 3.3 percent 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 percent 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 percent rate didn’t last long, settling in at a still competitive 2.3 percent everyday interest.

Wealthsimple Cash

Next to make a splash was the always creative and customer-centric Wealthsimple. Last week, 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 percent 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.

I 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 percent got bumped up to 2.45 percent. 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 percent 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 percent. The current promotion has Tangerine offering 2.75 percent for five months, while Simplii is offering 2.8 percent 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.

This Week’s Recap:

I made a big move with my portfolio this week, switching to Wealthsimple Trade – Canada’s first and only zero-commission trading platform.

WestJet just (temporarily) deposited $50 into my WestJet Dollars account. I wrote about WestJet’s clever marketing trick over on the Rewards Cards Canada blog.

I’m finally getting into a groove after my third full week working from home this year. I’ve been doing a lot more financial planning than I expected – which has been a pleasant surprise. Freelance work has also picked up, so I find my days just fly by.

My wife and I joined a gym nearby and visit there three times a week before lunch to break up the day. I’ve stuck (for the most part) to not working during the evenings or weekends. It’s a tough habit to break when you’ve been used to doing that for a number of years.

We’ve also slowly switched to a plant-based diet (my last taste of beef was an Irish Stew in Dublin last summer). Our reasons are primarily health, environmental, and ethical. The jury is still out on whether this diet is actually saving us money. We tend to buy lots of fresh fruit and vegetables, which are not exactly cheap – especially in the winter.

I’m tracking our food budget more closely and hope to report on any significant difference in our spending. In the meantime, here’s a great post on the How To Save Money blog on cheap vegan food and how much you can save by going vegan.

Weekend Reading:

Our friends at Credit Card Genius have updated the best gas credit cards in Canada for 2020.

The brilliant Morgan Housel uses a weight-loss analogy to explain why wealth is what you don’t spend:

Food “compensation” seduced its way into 90% of the exercisers’ lives. Another study found that “people fresh from the gym overestimated their energy use by up to 400 percent and ate more than twice as many calories” as they had just burned off.

Something obvious but hard to deal with in real time is that exercise only works when its gains aren’t cashed in.

Are active managers really better in downside protection? It’s a common argument against passive investing, but the data doesn’t hold up.

Some good thoughts by Michael Batnick on the active vs. passive debate: Save more, stay invested, and avoid market timing.

Millionaire Teacher Andrew Hallam is such a prolific writer and with his latest post on how to be a great investor he channels his inner Norm Rothery to come up with some wild metaphors:

“The Russian stock market, for example, offers an intoxicating call. It grew faster than a crowd offered free vodka near the Kremlin. It swelled 53.2 percent in 2019, when measured in USD.”

Michael James reports on his 2019 investment returns. Not bad for a newly retired investor!

A great post by My Own Advisor blogger Mark Seed about staying invested even in the face of uncertainty.

In his latest Common Sense Investing video, Ben Felix looks at market forecasts and says there are two big problems with these forecasts – they often make investors nervous, and they are usually wrong:

PWL Capital’s Justin Bender must be the leading expert on foreign withholding taxes in Canada and in his latest blog post takes an in-depth look at FWT on equity ETFs.

Dale Roberts at Cut The Crap Investing says not to let foreign withholding taxes drive the ETF investing bus.

An interesting post by Nick Maggiulli debating whether big tech is taking over the stock market.

Bank of Canada governor Stephen Poloz shares an idea about how splitting home ownership with investors could make housing more affordable.

A Wealth of Common Sense blogger Ben Carlson explains why owning a home is not for everyone.

Preet Banerjee looks at the pain of paying – how the method of paying affects spending and happiness:

Global News updates its annual look at the best cellphone plans in Canada – including which deals are worth the money.

A detailed breakdown of ride sharing versus car ownership and why you might want to ditch your car.

Finally, the real challenge of the next decade is matching your retirement dreams with reality.

Have a great weekend, everyone!

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  1. Kevin Rayner on January 25, 2020 at 10:58 am

    With CDIC only covering up to $100k, is it wise to deposit more than that with these type of banks??

    • Charles Friesen on January 25, 2020 at 11:29 am

      If possible,set up a joint account as well, to double your coverage.

    • Robb Engen on January 25, 2020 at 3:30 pm

      There hasn’t been a bank failure in 23 years, but are you willing to risk your money on that fact continuing? I recently had a client deposit $100,000 each at LBC, EQ Bank, and Oaken Financial. A bit of a pain, but likely worth the peace of mind.

      • Kevin Rayner on January 25, 2020 at 3:57 pm

        Yep. That’s what I have done. Was wondering if there was a need to give up the 0.5% differential between LBC and Motive rates for the security.

      • moneyhelp on January 25, 2020 at 4:28 pm

        What about deposits with CU in Manitoba, they are not CDIC covered, rather they are covered through the DEPOSIT GUARANTEE CORPORATION OF MANITOBA and they cover more than $100K. Thoughts?

  2. Wayne Marshall on January 25, 2020 at 11:02 am

    Got a chuckle out of your comments regarding high interest rate at LBC. I tried to open an ac out there for several weeks, got the run around, never returned calls and basically was totally ignored. Talked to there female manager with little help, no help what so ever. See how they can offer such rates if they don’t accept accounts. Eventually gave up and left consider money in lower interest account until I return from the south and other financial institutions offer comparable rates.

    • Eric Venzon on January 25, 2020 at 12:07 pm

      Motive Savvy Account instead 🙂

      • Kevin Rayner on January 25, 2020 at 3:59 pm

        2.8 vs 3.3%. I had no issues signing up with LBC but their website sucks.

        • Eric on January 25, 2020 at 4:08 pm

          No problem signing up with LBC Digital, took about close to 2 weeks to set up.

    • Robb Engen on January 25, 2020 at 3:32 pm

      Thanks for sharing your experience, Wayne! I’ve heard mixed reviews from some who have had success opening the account, to others like you who’ve got the run around. Not a good look.

  3. Maria @ Handful of Thoughts on January 25, 2020 at 11:46 am

    I love the rate wars that are going on. Opened an EQ Bank account last year and have been really happy with it. But I was very intrigued with the new Wealthsimple Cash. Now that EQ has announced their rate increase I think I will stay where I am to keep things simple.

    It is also worth mentioning that Motiv Financial has a Super Savvy Saver account that offers 2.8% interest up to a million dollars (then it drops down to 0.25%). Not sure who has more than a million dollars to keep in a savings account but I’m sure there are people out there.

    • Robb Engen on January 25, 2020 at 3:34 pm

      I’m in wait-and-see mode with Wealthsimple Cash. I’m not a big fan of ‘coming soon’ features, so if and when they get rolled out then I might open an account.

      Thanks for mentioning Motiv Financial. Hard to keep track of all the upstarts!

  4. Cheryl on January 25, 2020 at 12:52 pm

    I was happy to get the email from EQ Bank about the 2.45% interest. Especially since I just set in motion to transfer the funds from a one year GIC that just redeemed. Then my credit union called last night to try to entice me to reinvest in a 15 year GIC for 2.25%. I told them I’d already initiated a wire transfer so not interested.

    I’m a pescatarian – vegetarian who eats seafood – but mainly follow plant based diet. I keep a lot of frozen fruit and vegetables on hand because they’re often cheaper than fresh. The only fresh produce I have right now are bananas, apples, spinach, and carrots. Find of the week? Walmart is now selling 750 gram bags of frozen chopped onion for $2.27 Someone else peeled, chopped, and cried over onions? Perfect. I’m all in. Also look around for produce stores in your town. They generally cater to ethnic groups, usually Asian. I find the produce to be fresher and cheaper than regular grocery stores. Cruise the whole store while you’re there. Brown rice, dry beans, and spices are usually cheaper and larger sizes than the big grocery stores.

    • Robb Engen on January 25, 2020 at 3:37 pm

      Hi Cheryl, thanks for the tips! I guess since I ate all the seafood I could get my hands on when I was in Seattle and Vancouver that might make me a pescatarian, too!

    • Kevin Rayner on January 25, 2020 at 4:02 pm

      15 years for 2.25% ??? . I’m getting 3.3 on 18 months from Meridian. Why would you pick away for 15 years????!!!

  5. Dominique on January 25, 2020 at 1:55 pm

    Just got a call last week from my bank ( one of the big banks) to see if I wanted to open a high interest account or even a GIC. Told them I have high paying rate with my TFSA which I collect a 5.5 % from dividends. I use the dividend to pay for gifts throughout the year. Also on the subject of credit cards, for those who love shopping at Walmart, their MasterCard is a no fee, pays 1.5% on all in store purchases, and 1% on any other, it goes into a rewards account which there is no limit on when to spend it.

  6. DGX Capital on January 25, 2020 at 2:21 pm

    Tangerine finally has free Interac e-mail transfers, really felt they were falling behind the new online banks

    • Kevin Rayner on January 25, 2020 at 4:04 pm

      Tangerine are far behind on interest rates right now. I have transferred almost everything from them to the other banks mentioned in this article.

  7. John on January 25, 2020 at 6:05 pm

    AcceleRate Financial pays 2.3% on deposit accounts and it’s 100% guaranteed as it is a Credit Union.

  8. Christina Teskey on January 27, 2020 at 11:25 am

    I do most of my banking with Tangerine but am very disappointed in their interest rate on savings accounts. I “liberated” a large (to me) chunk of money from an equities-based TFSA with Tangerine and phoned them to ask if this would count as “new money” for their bonus savings rate. No, it wouldn’t — so I transferred it over to EQ bank. I imagine they’re losing some business over this.

  9. DJ on February 10, 2020 at 3:01 pm

    LBC savings interest rate is dropping:

    Effective March 1, 2020, the annual interest rate for the LBC Digital HISA on deposits up to and including $500,000 will change from 3.30% to 2.80%.

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