ING appears to want to be more like RBC | Tangerine Bank | Discussion forum

Interesting move by Tangerine. I expect PC Financial, which moves in tandem with Tangerine (and we should start calling it Tangerine now), to follow suit.

The fact is, banks are generally still awash in capital both from the retail banking as well as wholesale funding sources. Lending has slowed and the lending growth they are seeing is in the much higher margin credit card & automobile financing with their premium rates (true, they do have higher loan loss rates historically, but the net interest margin is that much greater). Unless we see dramatic lending growth across the board, the banks are essentially having their cake and eating it too (they can essentially raise deposits at sub 1.25% and lend, in the growing areas mentioned, at anywhere from 9 to 22% and even mortgage rates are marginally ticking higher). Essentially, if they don't need to raise capital and can still attract deposits at even lower rates, why wouldn't they? Bad for savers; good for banks and bank shareholders!

In short, I fully expect we'll see continued downward pressure on deposit rates through the end of 2014 before starting to tick upward in mid- to late 2015, I think. I think you'll see the "Big 5" banks drift their highest savings account rates down to 1%, Tangerine/PC Financial/Canadian Tire/ICICI Bank "group" down to 1.25% (in line with the Hollis Canadian Bank and BNS investment savings account rates, net of trailer fee of 25 bps), those banks currently at 1.75% or lower will drift down to 1.5% and the less capitalized banks will drift things down to 1.75% so that no bank/credit union in Canada will offer a rate above 1.75% by year end. There will still be "teaser" promotional rates, but with the lowered "base" rates, they can still effectively increase their margins on the deposit ends, coupled with the moderate increase in mortgage lending rates.

As lending rates continue to rise in mid-2015 and the Bank of Canada likely increases its "prime" rate in late 2015 or early 2016, you'll see deposit rates start to tick up, but to further increase margins, I think you'll only see deposit rates go up once for every second time the Bank of Canada boosts "prime".

That's why, I think rising interest rates will actually be superbly profitable for the Canadian (and indeed, foreign) banks. Not only have they wringed fairly substantial sustainable cost saves out of the business (i.e., operational, I.T. and interest margin), but they'll see continued margin expansion.

Cheers,
Doug

GS said

I looked at my RBC HISa rate and find they have moved (quietly) to 1.1% so it appears that, unlike gas prices, rates are going down.

GS

Not sure where you are looking, but http://www.rbcroyalbank.com/pr.....ducts/isa/ still shows 1.25% this morning.

GS said
RBC (Royal Bank retail banking) offers a High Interest Savings account and that is what I was referring to that has slid downward to 1.1% as is described here.

Greg

Okay, understood. I thought that eSavings account has been at 1.1% for 'ages'... certainly months best I can tell (my SO had some money in that one for some time).