Good for long term savings? | Alterna Bank | Discussion forum

xup6.yc said

Would you recommend me to put my savings in Alternabank?
I'm often overseas, so I'm looking for a high interest TFSA account where I can leave my money there and forget about it, at the moment Alternabank seems like the best option.
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Deposits are CDIC-insured. So, the money will be safe.

However, Alterna Bank's online-only savings accounts are quite recent (March 2016), less than a year old. There isn't much history about how their rates will behave. Their current 1.95% rate may not last.

Consequently, it would not be a good idea to just leave money there and forget about it. One could check up on them one day and be unpleasantly surprised at how low their rates had become. Just look at what happened with Zag Bank.

Zag Bank came onto the scene with savings accounts that paid 2% to 2½% per annum. Their current rate is 1.65%.

Generally, most banks define dormancy as 2 years with no activity whatsoever. And most banks either have a fee or something else you don't want happens when you exceed the time, so you should probably just mark your calendar to move a dollar in or out once a year. That shouldn't be too onerous, and it reminds you that you have the money there. However, I'm sure Alterna could answer this question by email.

You may not want to deal with a bank that does not offer 24/7 phone access because of your travels. On the other hand, if you just want to "forget about it", perhaps that isn't an issue.

Most (so far, all) of these "new" banks lower their interest rates over time, after they get what they want in terms of deposits. Alterna was perhaps a bit different in that it started with 1.85 and then moved up to 1.95%. Whether it will stay there, or for how long, who knows? Typically, within a year or sooner, they start to fall a bit. Right now, it looks like the target bottom line for most of them is somewhere between 1.5 and 2.0, the latter figure being perhaps a tad optimistic. So, right now, you can expect rates to settle into that zone somewhere. However, that zone has been a leaky ship for quite some time now, gradually sinking, and could very well take on more water. It used to be, up until perhaps this calendar year, that the rates went down when the Bank of Canada rate went down, and that was always their excuse. Now, they go down for no reason that is clear to the consumer, and they don't attempt to blame the Bank of Canada. It all has to do with what they think they can get away with and still keep as much of their deposits as they want or need for liquidity, and how much they have loaned out at what rate or plan to loan out, etc.

EQ Bank, I believe, has 24/7 phone access, and they are currently at 2%.

All savings accounts, by definition, have "rates subject to change". If you want more security about knowing whether the rates have plummeted unduly, you should look at Oaken. Oaken sends notices by email a week in advance of any rate changes, which gives you time to consider your options, and they are the only bank that does this as far as I know. They are currently at 1.75% and have been there for quite a while now (as these things go).
Hubert too now sends email notification of rate changes, but not in advance. They are currently at 1.7%, not open to residents of Quebec.

If you want to be sure of always having the best rate, you will probably have to spend more time on this than you appear to be willing or able to do.

As long as you keep your deposit under $100,000 (including accumulating interest), it will be insured, and I wouldn't worry beyond that bout the security of it. If you have more than that, you should use two banks.

AndreasChen, ok, you've piqued my interest: why do you think CDIC is a joke?

AndreasChen, CDIC (or any institution, for that matter) has not enough reserves for a "systematic" collapse, that's obvious - when that happens, all bets are off. But history has shown that usually what happens is an institution or a few collapse first (and then, if needed, the governments' versions of money printing start up to try to keep the whole system afloat) so CDIC should have enough to meet its commitments re the depositors affected by those few institutions. What also often happens too is the "industry", e.g. other banks, absorb the collapsed institutions and cover the depositors that way, in an attempt to maintain general confidence in the financial system. Or sometimes, even in good times, some institutions go under just because they took on too much risk or they overpaid depositors (some might say the "high interest" institutions on the Comparison Chart on this site fall into that category) or of just bad management, and that's where, if the failing institution is not absorbed by other institutions, CDIC should work fine. But, you're right, in a systematic failure those of use who purchase financial instruments will be cursing our decision not to buy land in the countryside, weapons and goats.