I suppose this brings up the discussion of how Canadian Tire can get away with having called this "an everyday rate -- not a promotional rate": https://www.highinterestsavings.ca/wp-content/uploads/2011/20110101_canadian_tire_tfsa.pdf. They also did something very similar last year, although without using such blatant misleading advertising: https://www.highinterestsavings.ca/chart
I don't have a Canadian Tire TFSA, but this is an especially disgusting tactic given the restrictions (and fees) around transferring money between TFSAs and in an out of TFSAs.
I sent them an email complaining about their misleading statement from here: https://www.myctfs.com/ContactUs/EMail/
December 12, 2009
Unfortunately, that's always one of the pitfalls of keeping your money in high-interest savings accounts where posted rates are subject to change without notice. It's sort of the banks' equivalent of the gas stations changing their posted gas price signage overnight. With TFSAs, the problem of "rates subject to change" is compounded by the high transfer out fees. Mind you, if you're transferring $15,000 out to another institution, they'll usually reimburse the transfer in fee if you ask nicely and consider locking it in. 🙂
Unfortunately, that's always one of the pitfalls of keeping your money in high-interest savings accounts where posted rates are subject to change without notice.
It's not so much the fact that rates are subject to change without notice that's a problem, the problem is that they advertised "Count on an everyday rate - not a promotional rate". I think it's pretty clear that they had a promotional rate and not just an everyday rate that is subject to change without notice. If the savings account rate also dropped, then it would be more believable that it was not a promotional rate.
December 12, 2009
It may be a bit misleading, but no more so than retailers who price things as $5.99 instead of $6.00 to lure consumers into thinking the price is actually closer to $5.00. Eventually, like the example I've named, people do catch on to their tactics. While I may not endorse CTB's practice, it is entirely legitimate as it was in fact an "everyday rate, not a promotional rate". They just decided, on a certain date, that their "everyday rate" needed to be changed. Where the problem with constant rate switches on TFSAs lies is in the "transfer out" fees that make it harder to switch institutions. However, so long as the TFSA rate is still among the highest (it is), people likely won't be bothered to transfer it out until the end of the year when they can just do a full withdrawal (including interest) and re-contribute the following year.
CTB was likely luring people in with very attractive rates that they could not sustain in a sole bid to buy market share. They likely lost a lot of money (although I don't think they'll break those numbers out within their parent company's annual report). The problem with that strategy is it likely cannot be sustained, especially if their higher interest credit card balances are not growing at the same rate as their deposit growth, then they have no need to continue buying deposits to fund the credit card balance growth and thus that erodes overall profitability. When they ultimately lower their artificially high rates, they will ultimately lose market share, though hopefully not below what it was when they started.
The onus is somewhat on the consumer: beware of artificially high rates, especially on TFSA savings accounts where extra fees may be involved, when no other competitor is offering the same rates. Also, look at their growth of their other businesses - do they need the deposits and for how long? You may want to delve into their interest rate spreads, if you can find that information broken out.
One could then argue that a "promotional rate" is more up-front than an "everyday rate", which is the opposite of what their marketing inferred. You also cannot honestly say that banks change their everyday rate by 1% in either direction, unless we were to experience a change in the economic situation more dramatic than what happened in 2008-2009.
It may be a bit misleading, but no more so than retailers who price things as $5.99 instead of $6.00 to lure consumers into thinking the price is actually closer to $5.00.
Labeling something $5.99 is a psychological trick. It's misleading only because it tries to trick you into thinking it is closer to $5 rather than $6, but in the end you pay $5.99, not less or more. What CTFS did is quite different than this, they blatantly said that it was not a promotional rate. I can't see how changing your rate from 2.5% to 3.5% on Dec 30, 2 days before everyone gets an added $5000 worth of contribution room to their TFSAs, and then dropping the rate back to 2.5% a few months after would be considered an "everyday rate". To me, by definition, this would be considered a "promotional" rate. The promotion lasted from Dec 30 to Mar 31.
You'll notice that in that entire timespan, their Savings Account had a rate of 2% and it did not change. That would be an "everyday rate".
December 12, 2009
I do agree it is somewhat misleading on CTB's part, but I would defer to my main point of the old adage, "buyer beware". Or, in this case, "saver beware". Beware of virtual banks offering vastly superior rates than the competition, especially on TFSAs where extra "transfer out" and "withdrawal" fees may apply. There's a reason the competition can't match them on those rates - when CTB is offering 3.5% for deposits in a TFSA (a savings account, not even a locked-in GIC) and the competition is offering five-year closed mortgages at or below 3.5%, one ought to realize that the rate is too good to be true. CTB was buying market share with a rate they could not sustain as they would be losing money by the month on those deposits. HSBC Bank Canada did the same thing several years ago with their Direct Savings Accounts - they paid out tens of millions of dollars in interest in order to buy market share but in terms of profitability, they were bleeding money.
Hope that clarifies,
November 8, 2009
I got sucked into the online bank TFSA racket the very first year the TFSA was offered (2009). I plunked $5000 into a PC Financial account paying at 4% only to watch the rate plummet to 1.5% a few months later. I wanted to transfer-out the funds to an online brokerage, but was informed that it would cost me $50 to do so, which would have basically equalled the interest paid into the account. So I withdrew the TFSA funds to avoid the transfer-out fee and had to give up the TFSA shelter until the following year when I opened a TFSA at a brokerage and deposited $10,039 ($5,039 withdrawal from PC Financial plus $5000 contribution room for 2010). I've since earned over 20% on my TFSA investments and haven't looked back since.
My advice FWIW is to avoid putting cash in a TFSA unless the institution has no transfer-out fee. You'd be beter off putting emergency funds in a non-registered savings acocunt and paying a few bucks in tax on the small amount of interest you accumulate.