Good news for savers looking for more performance than a piggy bank - two new high interest savings account rates have been introduced by popular alternative lenders.
President’s Choice Financial unveiled their 2.6% rate today on their Interest First Savings Account, Interest Plus Savings Account and No-Fee Chequing Accounts. This rate, which is available until July 15, is the highest offered by any Canadian bank. Only ING Direct’s 2.5% Investment Savings Account and RSP Investment Savings Account (RSPISA) comes close to this earning potential - the next closest range for savings accounts falls between 1.40% and 1.80%.
With today’s interest rates so low, savings accounts haven’t been the most effective way to build your funds. However, consumers trying to grow their money have made it clear they want more for their parked cash - and lenders are stepping up with competitive rates to capture more of this money-hungry market share.
There’s also an infusion of displaced former Ally customers in the market, seeking out a new high interest option for their money. The online bank’s popular 1.8 per cent option was recently shut down by parent lender RBC, who in turn offered existing clients 1.2% earnings on their deposits. Dissatisfied, many are turning to other banks for their savings needs - and lenders like PC Financial and ING are making a point of snapping them up.
Good, old fashioned savings accounts make up the bread and butter of a bank’s assets. Lenders highly value these clients because their business adds guaranteed value, rather than riskier collateral-based loan business such as mortgages, lines of credit and investments, all of which could default - leaving the lender on the hook.
Having a strong client base of deposits also decreases a bank’s exposure to high-risk consumer debt - banks who rely fees, trading and short term financing are considered riskier by global credit rating agencies like Moody’s, which downgraded six Canadian banks in January for being “increasingly indebted to the Canadian consumer”.
Maintaining a minimum base of deposits isn’t just best practice for Canada’s banks - it’s mandated by the The Office of the Superintendent of Financial Institutions. In March, it was determined that the strength of Canada’s banks is integral to that of our economic standing, effectively labelling our lenders as “too big to fail”. As a result, banks are encouraged to obtain assets with low risk profiles - and are also required to impose a 1% surcharge on high-risk assets - to protect their base assets in the case of another recession or financial shakeup.
Actively pursuing high interest savings clientele may be one of the ways CIBC ( who is partnered with PC Financial, which is owned by Loblaw, and one of the lenders identified by OSFI) is looking to pad their coffers, strengthen their deposit base, and prepare in the case of another economic downturn.
Will you be switching to one of these super high interest accounts? Let us know!