April 6, 2013
Interesting February 1st Financial Post article Equitable Bank is making a splash with its 3% interest rate — here’s how they do it by Barbara Shecter.
Comments from Equitable Bank CEO Andrew Moor indicate that the current 3% rate could be sustained, if needed:
“We are making a positive margin even at the three per cent we’re offering,” Moor told the Financial Post during a telephone interview. “The average mortgage rate is probably four and a quarter, or something like that, so yeah, there is a margin.”
What’s more, as an online bank, Equitable has no branch network to pay for, a cost that must be borne by traditional banks.
The CEO is candid again about not planning to pay 3% forever, even if it is sustainable:
“We’ve come out with an attractive rate to grab attention and attract customers,” Moor said. “We’ll probably (move) that rate down at some point.”
Apparently, he is aware of the rate chasers:
If the EQ Bank savings account rate is lowered at some point, Moor said he hopes his firm can establish an attractive and sustainable replacement that will limit the constant movement of a certain segment of savings from bank to bank in search of the highest savings rate of the moment.
“We really want to try and change that behavior. What we want is to offer a product that people don’t have to be constantly looking and checking to see what the rate is,” he said.
“The idea here is that the longer term reason why customers would use the account is that they trust we’re always going to offer a competitive rate … and that becomes a fundamental part of your savings approach.”
October 21, 2013
Re: his plan to hang on to clients after the rate falls -
I think Tangerine has already thought this one through and is ahead of the game, with its special rates for valued customers. However, they could stand to refine this annoying technique of making you phone in all the time to receive it, so perhaps Eq could ultimately improve on this. Certainly the Big Banks haven't the slightest idea how to hang on to savings accounts money except by depending on inertia and ignorance, which will not last forever. Old-style businesses are constantly being upstaged by new ones (and, as they say on Dragon's Den, "for that reason I'm out.")
I think he may also be underestimating the inherent volatility of a savings account For most people, this is not a place where money stays indefinitely, therefore he will not necessarily be able to hang on to it no matter what rate he offers. People spend it, move it to registered plans, use it for down payments, invest it, need to raid the piggy bank in emergencies, pay tuition, etc. It is, by nature, in flux. If they wanted to keep it sitting there, they would move it to GICs or an investment account.
In any event, if Eq doesn't improve it's current operation into something more efficient and reliable, none of this is going anywhere.
April 6, 2013
... Certainly the Big Banks haven't the slightest idea how to hang on to savings accounts money except by depending on inertia and ignorance, which will not last forever. Old-style businesses are constantly being upstaged by new ones (and, as they say on Dragon's Den, "for that reason I'm out.")
The Big Banks may not hang onto all the savings account money. But, they do know how to hang onto enough of it.
The article estimates there is $400 billion out there in Canadian bank accounts that pay either very little or no interest. In another interview, Equitable Bank CEO Moor says EQ Bank hopes to capture about $200 million of that $400 billion in its first year of operation.
I think the Big Banks are happy to let a competitor pay 3% for that $0.2 billion of the $400 billion. Meantime, they know they only need pay ½% or less for the rest.
I've seen it many times with other issues, like service charges: Customers complain. But, most won't move their money. The banks know this.
June 29, 2013
absolutely correct Norman1 - the big banks will continue to attract the bulk of depositors/clients for reasons other than just "the highest rate" on a savings account - factors which include convenience, lots of brick and mortar branches, security, stability. That is why savvy investors invest in Cdn bank shares.
October 21, 2013
Well, as I said, inertia and ignorance go a long way when it comes to people acting against their own best interests in choosing bank accounts. But, ultimately, with enough advertising and education, people will prove to be smarter than initially assumed. Canadians have been a bit "funny" about their banks, with this archaic sense of loyalty, and the banks have done well by that. But I don't see it as the way of the future.
ING started in Canada in about 1998 as I recall, and it was, I believe, the first of the new breed of higher-interest banks. (Had these not developed, we would not have this website at all.) It did so well that it got bought by Scotia, and no doubt continues to grow. I can personally probably account for about $1,000,000, maybe more, that has migrated from Big Banks to ING/Tangerine over the years, just by my own actions and referring others; and more has gone out of Big Banks to other destinations at my suggestion or instigation.
And now we have Oaken, Peoples, Zag, Eq, and perhaps others I've forgotten, all CDIC-insured, all offering significantly better rates than Big Banks most of the time. These banks are open because people found it worthwhile to make the switch. It seems like about 1 new bank per year opens, and they seem to be thriving.
By spending serious money on advertising, Eq has been overwhelmed with clients! This is clearly a growing trend. And I suspect that younger people, with apps for everything, and known, as a generation, for their relative lack of brand loyalty - except perhaps in tech - will have little difficulty adapting to the accessibility and superior rates of the newer banks, once they get their bugs worked out. My observation is that young adults don't seem very interested in bricks and mortar or standing in lines waiting for service. Any branch where you DON'T have to stand in line is likely to be closed.
I agree there will always be a need for some bricks and mortar branches. But, in reality, these are closing all the time. One of the TDs within a few km of me closed very recently, leaving a slew of people with no branch of any kind handy. The RBC branch used by an elderly relative is closing in June, forcing a trek to the suburbs. Every time a branch closes, a group of people who are very annoyed with one of the BigBanks are looking for an alternative., and every year more of them will discover that they can actually do better outside of BigFive.
Meanwhile, Oaken and ING/Tangerine have opened... branches! Not very many yet, it's true, but I think we are moving towards a levelling.
It's understandable that anyone who holds bank shares would want the banks to be seen in a positive light and will enjoy receiving the dividends, even when the value of their stock may be far less stable than the dividends and the banks are reporting losses on their investments. This, however, is not the province of the person who simply wants a reasonable return on their savings account and GICs and who understands that dividends come with market risk.
I am not sure how interested the Big Banks are any more in the deposits of ordinary folks. The reward offered to the depositor is shameful, and they keep closing branches. It seems that their real interest on the retail side is in the people with large investment accounts.
I was probably wrong to say that the Big Banks don't have any strategy for keeping their market share in the face of changing values and demographics. They are content to just let people leave, it seems, for now, but they do have one strategy, and it may work for them. Following Scotia's lead, they will probably all try at some point to acquire a well-functioning smaller bank. Eventually, that may be the only way they can hang on to our deposits. I anticipate that banks like Oaken/Home Trust and Peoples may eventually be bought up by the Big Banks, precisely so that the latter can remain competitive and still make money, by having a separate division that they are not interested in operating directly. Or they may render it so meaningless that it is absorbed into their normal banking operations, hoping to retain the customer base. However, there will always be a new upstart on the horizon. I was always led to believe that competition was supposed to be a healthy aspect of capitalism.
December 23, 2011
Loonie. Re your last point. Soon after Ing arrived an online bank (CDIC) emerged and it was owned by the largest credit union in BC, Vancity. Citizens was fantastic! Everything was free...cheques, ATMs, etc. Some of my memories were that I deposits to an RRSP at 10pm on the last day you could and whenever I called for a GIC, if the GIC rate was higher they would redo all of your existing GICs at the higher rates. They also had a Visa card. For some reason Vancity folded it and the mortgages were taken over by TD and the only thing Vancity retained was the Visa.
I lived in BC and Calgary when I dealt with them. I kept all my BC banking in tact as I had no intention of staying there so it worked perfect for ATMs and banking by phone.
October 21, 2013
I must admit to some confusion about VanCity. I too remember it as a leader in the credit union movement, much admired by some of us who didn't live there. I too have a recollection, however vague,that it had somehow disappeared or been swallowed up.
It has certainly faded from view, and you never hear anything about it any more, at least where I am.
However, if the internet is to be believed, it seems to still be functioning on all cylinders. http://www.vancity.com but undoubtedly with less spectacular service. Rates aren't even mentioned.
April 6, 2013
VanCity is still around. I looked at them decades ago when all the glowing write-ups were sprouting up all over the press.
I think they were leaders because of their size. I don't remember their products being so outstanding that I wished I lived on the west coast and could become a member. I suspected there was more feel-good hype than substance.
I just had a look. VanCity Jumpstart High Interest Savings account pays 0.7% per annum. Withdrawals are a hefty $5 each! Wonder what their members think when they hear about Tangerine's savings account: 0.8% and unlimited free withdrawals.
VanCity one-year non-redeemable GIC: 1.05% (1.2% if one "qualifies"). Peoples Trust (also in Vancouver) one-year GIC is 1.95%, everyone qualifies.
I found this article VanCity, I’m so tired of you by one VanCity member who eventually discovered that HSBC and Bank of Montreal (two profit-hungry banks) were more useful and helpful.
October 21, 2013
August 4, 2010
Vancity is the country's largest credit union ($20 billion), larger than all the Manitoba HISA-offering CUs combined. With great size comes great, um, sloth?
Institutions generally discourage debit transactions from savings accounts. The $5 level is common at banks, Manitoba CUs (except Hubert) generally go with 1 free, $1 subsequent. Vancity's account does at least allow for free bill payments from it - at Tangerine you have to use a chequing account.
Similar rates and fees at, say, Saskatchewan credit unions (Affinity). Aside from Manitoba, which seems to have evolved itself into a somewhat different place, I suspect tend to be closer to the Vancity levels - sort of "kinder, gentler" banks, rather than slash and burn disruptive entities.
December 23, 2011
I know we have gone off course. But you folks have found all the reasons why I must have dropped dealing with Vancity. They were just so ho hum and they had a lousy parking arrangement and not to mention their walk in ATM was often out of order. I didn't find fees an issue...must have had a seniors account. Coast Capital has better rates for GICs and there savings accounts, fee wise, were the same as a chequing......just no cheques. They have now trimmed to 10 free withdrawals a month then $1 each there after. I rarely get charged. Coast Capital has poor service too and I only use them to pay bills with and any surplus goes to Manitoba