EQ Bank, Zag Bank, and the relevance of high interest savings accounts

Today we saw the official launch of EQ Bank, whose headline feature is a 3% savings account. Regardless of whether even 3% can be called “high interest”, that is still 71% higher than the top rate (1.75%, shared by 6 institutions) on our chart and almost 4 times higher than Tangerine and PC Financial’s standard savings account interest rates (0.8%). EQ’s savings account also includes bill payments and 5 free Interac e-transfers per month, among other features.

EQ Bank’s launch is the latest in a string of new developments in the Canadian high interest savings landscape in this current era of generally low rates. Undoubtedly, people are seeking higher returns in equities and other investments, but high interest savings remain a key element of many Canadians’ strategies.

20 years ago, PC Financial launched, and a year later ING Direct (now Tangerine) came onto the scene. These were game-changers, offering rates much higher than the big banks and pushing an online model where the savings from not having traditional brick & mortar locations could be passed on to customers. They were considered pioneers in this space and are very much mainstream today.

Fast forward to 2012 when Scotiabank acquired ING Direct, and re-branded it as Tangerine in 2014. Savers complained about how Tangerine would never be as attractive again, but in reality, Tangerine / ING’s rates had lost their competitive edge since about mid-2009.

The online divisions of several Manitoba credit unions, as well as other upstarts such as Canadian Direct Financial, Canadian Tire Financial, and ICICI Bank launched in the 2000s. (Technically, Achieva Financial came even earlier: 1998.) They quickly hit the top of the rate charts and have stayed there to this day. None of them have reached the name recognition or adoption of PC Financial and Tangerine, but savers in search of the best rates have been touting these institutions for many years, and the number of alternatives has increased steadily.

In 2013, we saw the beginning of frequent promotion rates. While there have always been promos for new accounts, these promo rates advertised the best rates for new deposits in existing accounts. A look at our promo page shows the proliferation of such offers. Although PC Financial and Tangerine’s regular rates still languished at the bottom of the chart, these promos shot them back to general relevance. These promos require savers to strategize more, however, and many people transfer their savings between institutions before a “new deposit” promo ends so that they are eligible for the next one. Zag Bank joined the promo scene, although with a few glitches. Tangerine and Zag Bank have also started to offer promotion rates on entire balances instead of just new deposits. Tangerine has recently started an even more involved variation where you have to call in to ask for a higher rate, testing the limits of how much savers are willing to chase higher rates. This keeps the hardcore savers mostly happy but normal savers who can’t be bothered still get the lower rates.

Thus, at the beginning of 2016 we still have a few financial institutions offering good, normal rates on savings accounts on all balances, and an increasing number of institutions trying to stay relevant by relying on promotions that make savers jump through hoops. EQ Bank states that 3% is their regular, non-promo rate. There is a bit of hope that this could usher in a new era of high interest savings despite the general economic malaise, but only time will tell whether EQ Bank can become a serious player!