Quiet? | General financial discussion | Discussion forum

Equity Markets are ripped, but our saving accounts are safe! Have a cup of beers and enjoy the late summer days

I'm not certain that a savings account ever kept up with inflation. But if you are earning 3% risk free, cashable any time at Tangerine, in today's environment, that's pretty good in my book.

Brian said

2of3aintbad said
I'm not certain that a savings account ever kept up with inflation. But if you are earning 3% risk free, cashable any time at Tangerine, in today's environment, that's pretty good in my book.

Agree 100% - 3% is pretty good in this environment - frankly, I do not understand why they need to pay 3%. No other bank pays that today. With a possible cut coming in the BoC rate - seems even more illogical to pay 3%.

3% is very good in this environment, no question. I think it's also a smart move for Tangerine.

It seems to me that the competition in interest rates has changed over the last few years. The "hot" competition has moved to shorter and shorter rates. A year or so ago, it was in the 1 year rates, but now it is down to daily rates.

I also read that there is a higher-than-usual amount of money sitting in savings accounts right now because a lot of people feel the market is ready for a correction and they don't want to get in right now. So there is a lot of money sitting on the sidelines, and it may still be there for quite a while. Add this to the seniors demographic bulge. Seniors require a greater percentage of their assets in cash and bonds etc. It is generally suggested that seniors should always have at least a year's funding available in cash plus money for emergencies and capital expenditures, which means a lot of money sitting in bank accounts.

I'm sure it's been costing Tangerine when people regularly move those large sums in and out of their bank. They didn't offer 3% to all their customers. It would be interesting to know what percentage of savings account money on deposit is committed to 3%. It's just a guess, but I would say 20% or less. Whatever it is, if you do a weighted average of those who are getting the bonus and those who are not, it's certainly significantly under 3%. When I talk to "ordinary" people, there are still many who've never heard of Tangerine, most don't know it's the successor to ING, and even those who have heard of it aren't aware of this offer. Of the people I've spoken to, none were aware of the offer. People who have paid advisors seem least likely to know about it because apparently those advisors never tell them, as there's nothing in it for them. I remember mentioning ING to an advisor at a major investment firm quite a number of years ago, when ING had only been around for about a year, and she had never heard of it even though she's in the money business! She said that if I could get that rate, I should go for it, but it was me who brought it up. She showed no curiosity, and it was obvious she was never going to recommend it to anyone. That was my first clue that advisors may not be worth their keep.

Tangerine's competition is basically PC Financial. If they can put a squeeze on PC, which ought not to be that difficult considering PC generally is more difficult to deal with, they probably figure they will be better off in future. (Remember, we used to have both Zeller's and WalMart; but WalMart squeezed out Zeller's, and their prices are higher compared to the market than they were when we had Zellers as well, and are not particularly competitive compared to other discount stores.) It costs a lot more for a business to gain a customer than to keep one. Tang's strategy is a way of keeping down marketing costs, while retaining customers. Note that it was an extraordinarily low-key low-cost campaign. I'd rather they gave me the better rate than spent the difference in marketing.

I think it was a smart move, both for them and for us. But I also expect more competition in savings accounts rates until the economy improves, which could be quite a while if things continue as they are now.

And so, I think it may indeed make sense for Tangerine to make this offer.

They may not be losing money in the longer term. Marketing expenditures are all "lost" money in terms of direct financial return. This may be part of the marketing budget. They are getting some good PR out of it, whereas they have been getting panned by us lately for poor returns. I personally have spread the word to a few people, people who don't have accounts there and aren't going to get this promo, but it has put Tang on their radar.

As marketing and research, it could be a valuable tool for them to ferret out who amongst us has more money that we COULD bring to Tang if we were motivated. I recall that you yourself, Bill, said you would be doing that for this offer. Now, they know you have more money, even if you don't leave it there after December. They can use that information to appeal to you in future with other investment opportunities. They may be testing the waters for offering more products in future, to see if there is an audience amongst people who are pursuing higher-interest accounts for more diverse products. There are lots more areas where they could expand.

I'm also not sure it has to pay 3% if they invest it. Their going rate is 0.8%. If 20% of the money in their savings accounts pay 3%, the weighted average that they are paying out is only about 1.2%, less than even BMO and Scotia are paying in their premium accounts right now, so still a good deal for them as an almost-no-bricks-and-mortar establishment. Making it a short time-limited offer created a situation where the response would be limited, even among those who qualified, and they set it up in such a way that they could end the offer whenever it got too expensive for them.

Just as a point of comparison, I was looking at the DUCA site last night. Car loans are running over 4 and 5%, and business loans even higher. It seems there's opportunity for banks to get a healthy return on our money. It doesn't all have to go into mortgages.