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15000 Accounts
March 1, 2016
12:27 pm
amidat
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As of close of business day Feb 29, EQ Bank has opened 15000 accounts.

Now that they have already surpassed their goal, the question is how quickly will they reduce the interest rate.
On quarterly conference call they said that reducing the rate is inevitable but not wanting to do it to quickly for fear of upsetting all the new customers.
Time will tell.

March 1, 2016
3:42 pm
Loonie
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I'd like to know how they plan to lower the rate without "upsetting the new customers"!
Perhaps we'll get chocolate - like Oaken.sf-wink

March 1, 2016
5:40 pm
kanaka
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Loonie said

I'd like to know how they plan to lower the rate without "upsetting the new customers"!
Perhaps we'll get chocolate - like Oaken.sf-wink

Right now 1.75% is the second best. My quess they will drop to 2.5 then to 2.25 then to 2.0 and perhaps they will always be .25 better.
Or
Maybe same as the best 5 year GIC rate ... 2.5?

They are not offering a lot of stuff that requires their manpower so they should be able to be top rate....the question is.....what will their formula be?

Still waiting for my chocolates. :)

March 1, 2016
11:05 pm
Loonie
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Here's something I truly don't understand. If Eq can offer 3% and still be making a profit, albeit not as much as they might like (according to a comment that was posted a few days ago from CEO), then why can't at least one credit union give us 3% on an ongoing basis?

CUs are supposed to be non-profit, owned by the members, members get the benefits instead of shareholders, etc etc. Yet often their rates are worse than, say, Oaken or Peoples, and some credit unions much worse than others.

Alterna Credit union, for one, has a branch close to me. We closed our account there last year because the returns were no better than BigBank across the road and not at all competitive with the best available rates. Some may say it's the cost of bricks and mortar, but we are not forcing them to only consider bricks and mortar. A freestanding ATM would do, with a mostly online bank. PC has perhaps covered this best, with their pavilions and ATM access, avoiding branches and devoting only a small footprint of their grocery stores to banking.

I'm looking for more innovation from our credit unions. It would be nice if I didn't have to send my money to Manitoba - nothing against Manitoba, very friendly place as their licence plates proclaim! but I'd rather keep my money local.

Many years ago, before buying a house, I had an account at a credit union near my workplace. It was recommended to me by a co-worker who was from Saskatchewan who thought, based on experience back home, that credit unions were always a better deal. He was quite a bit older than me and had grown up during the Depression on a farm and remembered the banks throwing the farmers off their land without a second thought. The credit unions, being locally based, understood the complexity of the farmers' situations, and tried their best to keep the farmers afloat, he said.

I used that CU as my primary bank for some years until I was ready to buy a house. Towards the end of that period, I could see that their interest rates on the account weren't doing very well compared to the banks but I decided to keep it open anyway because I knew I'd be looking for a mortgage and had always been told that CUs had better mortgage rates.
So, the day finally came when I needed the mortgage. Imagine my surprise when I discovered the credit union was not the least bit competitive and there was really no reason to do business with them any longer! The mortgage, at that time, went to National Bank, which gave me the best deal. And there it remained for the duration, because of my inertia.
In the end, both myself and my co-worker closed our accounts.

March 2, 2016
6:06 am
xxxx
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My impression is that "credit unions" are sort of a relic of the past which existed originally for certain unique communities, on a "membership" basis, for their mutual benefit. The progressive credit unions of today like Meridian and Alterna are probably not that different than the banks in the services they provide at least to the average customer. Don't think credit unions can provide the full range of services to all customers (business and non-business) - but are adequate for the little guy who has basically a paycheque, car loan and mortgage - but likely at no better rates than the banks.

March 2, 2016
7:37 am
ertyu
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Banks work off the spread between the rate they loan money out at and the rate they pay out money on what they get in. I would guess the majority of people have more outstanding in debt than they have savings. Which would make the credit unions try to offer debt at very low rates as an advantage to their members. Why can't they pay out 3%, because they are offering loans well below that.

March 2, 2016
7:57 am
NorthernRaven
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Equitable isn't paying 3% on all its funding, forever. It is paying 3% on a small fraction of its funding (Equitable has billions of dollars of deposits), for a short time. Consider it a promotional/startup expense. It is an investment in acquiring a larger retail deposit base.

If they've hit the 15000-account mark already, and put in the $100K account limit, they may have hit one of their ramp-up targets much faster than they expected. It will depend on just what they are prepared to spend in "foregone" interest from whatever rate they are heading down to. I'd suspect they'd have a hard time crashing the rate too much, too quickly, this soon.

March 2, 2016
8:20 am
Bill
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Brian, you are correct, today's urban based credit unions have nothing in common with the original credit unions in western Canada arising from farmers' discontent with big banks or with the original union worker-based credit unions elsewhere. Just like Starbucks bears zero resemblance to the old corner coffee shop. I walked into a local credit union recently and there was nobody else in there except for 4 employees standing together laughing and chatting (one had just brought out a plate of warm cookies) and one came over to take me to see a 5th employee about my business. Nice, brand new building with latest in office set-up, made the local RBC branch look downright shabby and understaffed. I can understand why this credit union offers rates no better than the big banks. There are some people who use credit unions on a matter of principle, because they think they're owned by local people instead of greedy capitalists for away, it's a way of sticking it to The Man, so the credit unions continue to have their target market.

March 2, 2016
9:39 am
kanaka
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I can remember the day (1970s) in Mission BC when my wife in tow of 3 little girls in the rain wanted to cash a credit union cheque written by my father. They would even NOT buzz her in. If I recall there used to be some type of a delay cashing/depositing a CU cheque at a bank. My parents closed the account and I stayed away from CUs for years. And yes I agree not much difference for policies while rates are only a tiny bit better. I find service at BMO to be hit and miss but now much better than Coast Capital CU. And of course all the online/telephone only FI's usually are good althoght PT at times can be so so.

March 2, 2016
12:01 pm
bb123
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ertyu is correct. I truly believe that EQ is offering 3% because it would get attention (as it did) and that the premium they are paying is simply no different than a marketing expense. Loonie is wondering why Manitoba credit unions don't pay 3%. Take a look at what they are earning on lending money. Most are earning 2.64% for 5 years on a mortgage and less than that for any term of less than 5 years. For example, I think Accelerate's parent company (Crosstown Civic Credit Union) is advertising a variable rate mortgage at 2.20%. So a better question might be how can they afford to pay the rates they already pay. Not much margin there to pay their bills. Sure we all want 3%. (can you imagine? Not long ago we scoffed at 3%). But it's a gimmick. The rates we can expect can be no more than what an FI makes on lending it out, minus their operating expenses. Different FI's have different overhead so I doubt that one can assume a certain number of basis points that this would equate to. If EQ makes money when their cost on deposits is 3%, I think one can assume that they have a very high risk loan portfolio if they are able to command a higher rate on their lending. Then the question might be how secure are our deposits there if they are a high risk lender. I would suggest we enjoy the 3% for how little time it may last, and move back to where each of us feels comfortable to have our money when they come back to "normal". But that's my humble opinion.

March 2, 2016
12:26 pm
Barb.
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I've parked my money with Achieva for years as it offered the best rates. When Oaken started up, offering 3.5% GIC's, I took advantage & bought TFSAs & GICs there. Right now, EQ's 3% is better than anyone else in either HIS or GIC accounts. If/when they drop their rates, I'll decide whether to stay or go depending on the rates. When that happens, I'm hoping they'll offer TFSAs/GICs at a promotional rate to entice clients to stay.

March 2, 2016
7:49 pm
Loonie
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People have made some valid points here, but I still don't understand why no credit union in Ontario can apparently do what many are doing in Manitoba, or better

There are tons of places in Ontario where rent is cheap and they could set themselves up there as an online division. I suppose Zag comes closest, but they are QC-based through Desjardins, which is technically still a credit union and not at all behind the 8-ball.

Interestingly, Desjardins claims on its website that Bloomberg rated them the strongest FI in North America in 2014. I must admit to some confusion about their corporate structure, as Zag is a bank that is insured by CDIC under its own name. However, that ought to make Zag a very safe place to put your money, potentially safer than any other institution in the country. If we think, as many have suggested, that Tangerine is perfectly safe in amounts greater than 100K because it's owned by Scotia, then Zag must be at least as good.

The CEO of Eq Bank, who is sometimes candid to a fault, admitted that Eq is making a profit even at the 3% rate, because, as he said, mortgage rates are even higher. https://www.highinterestsavings.ca/forum/eq-bank/3-rate-could-be-sustained-if-needed/ as reported by Norman1. He is very clear that this IS sustainable, but of course there is no motivation to make it sustainable to the point of keeping savings rate at 3%. I get that Eq is a profit-oriented bank which has shareholders, but what is stopping the CUs from following suit and awarding the profits to members?

I get the feeling that, as Brian has suggested, the CUs in Ontario are mostly operating out of an outmoded philosophy. I'm not sure it has to do with urbanization though. If Desjardins, a member-owned institution, can become so huge, and can spawn Zag (whose longer-term rate structure is not yet known), then what's the matter with the rest of them?

Not all loans are for mortgages. I can't remember which institutions this applies to at the moment, but I remember reading about the investments of some of them within the last couple of years. Equitable Bank, the mother of Eq Bank, says it invests in residential and commercial mortgages including CMCH mortgages. I don't know what the rates are but perhaps commercial is higher? Some specialize in second mortgages; another in car loans, etc., which have higher rates. Some finance farms. Peoples is into multi-family residences and Visa cards. There are also small business loans and commercial banking. Each will have its own rate structure and priorities. Second mortgages etc may be riskier, but I'm sure the actuaries have figured all of this out so that losses are balanced by higher rates. National Bank just wrote off a major investment in something that I think was called Maple Leaf Financial or similar in the last quarter, which made a major dent in their bottom line, and other big banks had issues as well. Such losses seem well tolerated by both the FI itself and their shareholders and depositors as I haven't heard of any stampede out the door.

It still seems to me that there should be more room for better interest rates for depositors. I get that the 3% is a promotion although Eq refuses to admit this. But Tang offered 3% to many of us last year for 6 months, DUCA CU is offering it for 80 month GIC still as of today, and the CEO of Eq admits 3% is sustainable.

I agree in principle with Northern Raven that Eq ought not to drop its rate too precipitously. However, Peoples' TFSA went from 3% to an unexceptional 1.75% in just about 1 year, admittedly after holding the line for several years. It probably took them much longer, though, to reach target, as they don't seem to have the almost unlimited funds for advertising that Eq seems to have.

March 2, 2016
10:04 pm
Norman1
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Loonie said

...

The CEO of Eq Bank, who is sometimes candid to a fault, admitted that Eq is making a profit even at the 3% rate, because, as he said, mortgage rates are even higher. https://www.highinterestsavings.ca/forum/eq-bank/3-rate-could-be-sustained-if-needed/ as reported by Norman1. He is very clear that this IS sustainable, but of course there is no motivation to make it sustainable to the point of keeping savings rate at 3%. I get that Eq is a profit-oriented bank which has shareholders, but what is stopping the CUs from following suit and awarding the profits to members?

...

Those comments from Equitable Bank CEO Moor only apply to Equitable Bank and not necessarily to Canadian financial institutions as a whole.

The 3% rate on the EQ Bank savings account is sustainable for Equitable Bank because the average mortgage rate is around 4¼% in their book of mortgages that they keep for themselves.

I don't think credit unions average 4¼% on their book of mortgages.

Equitable Bank has an average around 4¼% for their mortgages because they aim for non-prime mortgages. Not necessarily subprime. But, not strictly meeting the criteria to qualify for a mortgage at the posted rates one sees at the big banks and at the credit unions.

The 3% rate is sustainable for Equitable Bank. However, I think it is not desirable for them because it cuts their usual spread/profitability by over 50%, from around 3% to around 1¼%.

These comments from one of Equitable Bank's competitors, Home Capital (parent of Home Trust who bring us Oaken Financial), to Canadian Mortgage Trends in Home Capital’s MBS Strategy Could Set Precedent sheds some light on the mortgage lending business that Home Trust and Equitable Bank are in:

Getting securitized prime mortgages off the balance sheet would allow Home to increase its “originate-to-service” prime mortgage business, while also selling more non-prime mortgages. Non-prime mortgages are the end-game because they’re three times more profitable. They have a 3.00-3.25% margin versus just 1.00% for prime mortgages, [Home Capital President/CEO Gerald] Blowes explained.

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