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Wealthsimple launches Smart Savings Account
February 1, 2020
8:29 am
Norman1
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Doug said

Norman, with all due respect, you are thinking too umm, how should I characterize this, linearly, I guess? You are trying to equate your knowledge of broker-held HISAs, as well as traditional investments like mutual funds, stocks, bonds, and the like, but this is not that.

My knowledge allows me to see that what you are describing makes no sense and that no-one would set it up that way. Wealthsimple would end up paying CIPF insurance fees for no effective coverage. I strongly suspect they are smarter than that.

You have to think of the brokerage account as being like a wrapper, which itself is protected by CIPF. CIPF does not cover the contents within that wrapper, which include any stocks, ETFs, mutual funds, bonds, HISAs, and so forth. …

The brokerage account is not a wrapper for the product. Why would Wealthsimple do that and neuter the CIPF coverage for the money?

The brokerage account is the product. The Wealthsimple Cash account is just a rebranded Canadian ShareOwner Investments, Inc. brokerage account.

Funds sent to the account become part of the cash balance of an individual Canadian ShareOwner Investments, Inc. brokerage account. The 2.4% interest paid will be added to that same cash balance.

That cash balance is owed to the account holder by the investment broker Canadian ShareOwner Investments, Inc. Therefore, the cash balance is insured by CIPF, up to $1 million for each client.

It is as simple as that. Just take what it says on Wealthsimple's web page at face value. Don't bother with that elaborate stuff about nominee accounts, balances on prepaid cards, and such!

Wealthsimple is saying that, for now, Canadian ShareOwner Investments will park all that money from the cash balances in uninsured deposit accounts at some of the Canadian Domestically Systemically Important Banks. Currently, Canadian DSIB's are the following:

  1. Bank of Montreal
  2. Bank of Nova Scotia
  3. Canadian Imperial Bank of Commerce
  4. National Bank of Canada
  5. Royal Bank of Canada
  6. Toronto-Dominion Bank

That's just extra information. Just like Equitable Bank shares that money from their EQ Bank products will be used to fund near-prime mortgages.

Equitable Bank is not acting as a mortgage broker and selling those mortgages to the EQ Bank account holders. Similarly, ShareOwner Investments is not acting as a deposit broker and selling those uninsured deposits to the Wealthsimple Cash account holders.

February 1, 2020
8:59 am
Doug
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Norman1 said
My knowledge allows me to see that what you are describing makes no sense and that no-one would set it up that way. Wealthsimple would end up paying CIPF insurance fees for no effective coverage. I strongly suspect they are smarter than that.

Norman, no that's still not correct, and I don't know if it's a matter of them not being smart enough or not. CIPF covers the carrying broker for any affiliated brokers or portfolio management firms in the event the client suffers unauthorized removal of assets from their account or because the firm becomes insolvent and simply doesn't have the funds in their trust accounts. It does not cover investment losses. And, just because Wealthsimple Payments, Inc., deposits the funds to member banks and returns an amount roughly equivalent to their own return doesn't mean there's suddenly CDIC insurance.

I've noticed you always want to see things in black and white, but in some cases, such as this, without opening a Wealthsimple account, it's far from clear. So, you have to make inferences, which are flawed, in thinking this is the same as a traditional broker-held ISA. It is not.

Wealthsimple Cash is covered by CIPF because, simply, it's inside the brokerage account. However, that doesn't make it a broker-held ISA held in one's own name. It is not that. It is a cash-equivalent account, inside of a brokerage account, and through technology APIs, they are able to partner with Peoples Trust Company, which issues the prepaid cards and confirms the balances of the Wealthsimple Cash account. Wealthsimple has their own bank accounts for their business purposes to which they deposit their funds. It's really not that complicated when you boil it down like that.

The brokerage account is not a wrapper for the product. Why would Wealthsimple do that and neuter the CIPF coverage for the money?

They're not; I never said they were. It's covered by CIPF to the extent that CIPF provides coverage. It does not provide coverage if the underlying banks fail. Wealthsimple may well cover their clients' losses in the event that one of the underlying banks fail, but that's not part of CIPF or because they're obligated to.

The brokerage account is the product. The Wealthsimple Cash account is just a rebranded Canadian ShareOwner Investments, Inc. brokerage account.

That cash balance is owed to the account holder by the investment broker Canadian ShareOwner Investments, Inc. Therefore, the cash balance is insured by CIPF, up to $1 million for each client.

We don't know that it's treated as a cash balance, for one. But, they are not obligated to make the interest payments to the client under CIPF. That is a return they've said they're going to buy, but it could be suspended at any time. Moreover, I would add that if one of Wealthsimple's underlying banks, which I'm sure you can agree by now are not in any way connected to the end user, were to fail, there's a good chance Wealthsimple had already failed.

I'm not saying the risk is high, but it's still higher than had it been directly in a CDIC member institution account, held in one's own name or in a nominee ISA at a brokerage firm, both of which are covered by CDIC.

As such, my recommendation to limit your balances to $1,000-5,000 in Wealthsimple Cash is entirely reasonable. It is not the same as Wealthsimple Save. Full stop.

Cheers,
Doug

February 3, 2020
1:51 pm
Briguy
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@Doug and @Norman1
I emailed CIPF and asked what happens if the bank fails where WealthSimple has invested my money that I put into their Cash account.

I'm going to paste in their answer:

"CIPF provides limited protection for property held by a CIPF member firm on behalf of an eligible client, if the member firm becomes involvent. CIPF member firms are investment dealers that are members of IIRCC. Banks are not CIPF members. Therefore, if a bank went insolvent, CIPF coverage would not apply."

February 4, 2020
8:06 am
Doug
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Briguy said
@Doug and @Norman1
I emailed CIPF and asked what happens if the bank fails where WealthSimple has invested my money that I put into their Cash account.

I'm going to paste in their answer:

"CIPF provides limited protection for property held by a CIPF member firm on behalf of an eligible client, if the member firm becomes involvent. CIPF member firms are investment dealers that are members of IIRCC. Banks are not CIPF members. Therefore, if a bank went insolvent, CIPF coverage would not apply."  

Thank you, @Briguy; that's absolutely what I have been saying. sf-cool

Note, too, that Canadian ShareOwner Investments, Inc., which is owned by Wealthsimple, would have to fail, or be put into some sort of receivership by its regulator(s) (i.e., IIROC, securities commissions, etc.) in order for CIPF to kick in. Thus, CIPF really only provides coverage if Canadian ShareOwner Investments, Inc., is deemed to be non-viable as a going concern; there is nothing in CIPF that would compel Wealthsimple or Canadian ShareOwner Investments, Inc., to provide restitution in the event of an underlying bank failure. They may well make their clients whole in such an event, but it would be on their terms, and there is no such mandated guarantee.

Cheers,
Doug

February 4, 2020
5:26 pm
Norman1
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Briguy said
@Doug and @Norman1
I emailed CIPF and asked what happens if the bank fails where WealthSimple has invested my money that I put into their Cash account.

I'm going to paste in their answer:

"CIPF provides limited protection for property held by a CIPF member firm on behalf of an eligible client, if the member firm becomes involvent. CIPF member firms are investment dealers that are members of IIRCC. Banks are not CIPF members. Therefore, if a bank went insolvent, CIPF coverage would not apply."

That's the correct answer to a different question, Briguy!

That's the answer to the question of what happens when one had invested the money in a brokerage account into a bank GIC or bank deposit note and the bank fails. The brokerage account would then hold a GIC or deposit note of a failed bank and not cash.

Ask them what happens if one has a cash balance in a brokerage account and one of the broker's banks fails, losing those cash balances from the broker's clients.

February 4, 2020
5:36 pm
Briguy
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Norman1 said

Briguy said
@Doug and @Norman1
I emailed CIPF and asked what happens if the bank fails where WealthSimple has invested my money that I put into their Cash account.

I'm going to paste in their answer:

"CIPF provides limited protection for property held by a CIPF member firm on behalf of an eligible client, if the member firm becomes involvent. CIPF member firms are investment dealers that are members of IIRCC. Banks are not CIPF members. Therefore, if a bank went insolvent, CIPF coverage would not apply."

That's the correct answer to a different question, Briguy!

That's the answer to the question of what happens when one had invested the money in a brokerage account into a bank GIC or bank deposit note and the bank fails. The brokerage account would then hold a GIC or deposit note of a failed bank and not cash.

Ask them what happens if one has a cash balance in a brokerage account and one of the broker's banks fails, losing those cash balances from the broker's clients.  

Perhaps, but I did specify CASH account at WealthSimple , so I won't be using Wealthsimple as a regular bank until we know 100% it's guaranteed.

Incidentally, Wealthsimple roboadvisor is good for people with less money to invest, but when your account is large, the 0.4% fee is more expensive than other roboadvisors,

February 4, 2020
5:38 pm
Doug
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Norman1 said

Briguy said
@Doug and @Norman1
I emailed CIPF and asked what happens if the bank fails where WealthSimple has invested my money that I put into their Cash account.

I'm going to paste in their answer:

"CIPF provides limited protection for property held by a CIPF member firm on behalf of an eligible client, if the member firm becomes involvent. CIPF member firms are investment dealers that are members of IIRCC. Banks are not CIPF members. Therefore, if a bank went insolvent, CIPF coverage would not apply."

That's the correct answer to a different question, Briguy!

That's the answer to the question of what happens when one had invested the money in a brokerage account into a bank GIC or bank deposit note and the bank fails. The brokerage account would then hold a GIC or deposit note of a failed bank and not cash.

Ask them what happens if one has a cash balance in a brokerage account and one of the broker's banks fails, losing those cash balances from the broker's clients.  

Observation: Although likely classified as "cash and cash equivalents" on one's brokerage statements, we don't know this is treated as a straight cash balance in a brokerage account. I suspect it's not; it is a cash balance held, essentially, as either security for a prepaid payment card account administered by Wealthsimple Payments, Inc., who holds the actual funds in its own name in its own bank account. In turn, it subsequently subcontracts out part of that administration function to Peoples Trust Company for the actual issuance and closure of the physical cards.

Cheers,
Doug

February 4, 2020
5:51 pm
Norman1
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Briguy said

Perhaps, but I did specify CASH account at WealthSimple , so I won't be using Wealthsimple as a regular bank until we know 100% it's guaranteed.

Careful! A cash account at a broker does not mean an account that only holds cash. It means an account that has no pre-approved borrowing and purchases in the account must be fully paid for by settlement date.

A cash account is in contrast to something like a margin account.

My cash accounts at Scotia iTRADE hold very little cash and mostly investments like shares and mutual fund units.

February 4, 2020
5:58 pm
Norman1
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Doug said

Observation: Although likely classified as "cash and cash equivalents" on one's brokerage statements, we don't know this is treated as a straight cash balance in a brokerage account. I suspect it's not; it is a cash balance held, essentially, as either security for a prepaid payment card account administered by Wealthsimple Payments, Inc., who holds the actual funds in its own name in its own bank account. …

That's not what their product page says. Their product page says the balance in the Wealthsimple Cash accounts are with the broker Canadian ShareOwner Investments, Inc.

Your description of CIPF is also incorrect. CIPF insures the contents of client accounts owed to the broker's clients. CIPF does not cover anything that is owed to the broker or owners of the broker.

April 1, 2020
11:35 am
meghan88
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Wealthsimple is getting really, really bad at communicating changes to rates, which are even hard to find on their site. And the amount of time it takes to transfer funds between accounts is bad, too.

Wealthsimple CASH rate is now 0.90%, down from 2.4% two months ago when the HISA rate was 2%.
Meanwhile, the Wealthsimple HISA rate is 1.55%.

So, they basically suckered people to switch to CASH from HISA when CASH was launched, then switched the rates.

And, transferring $ from WS CASH to WS HISA takes 7 days (!).

When they started their service offerings a few years ago, they were transparent and very responsive - I could get an answer in hours. Now it takes three days or more.

They are starting to chip away at other things, too. The Priority Pass is reduced to a total of 10 lounge visits/year, down from unlimited. Again, this was not communicated.

One more issue is an apparent inability to transfer the full balance including accrued interest from one WS account to another WS account, even though there's a clickbox for that. Seems there are always a few pennies left in the old account once the dust settles, which is a nuisance.

In short - I think they grew too fast and are overextending themselves.

April 1, 2020
11:59 am
Doug
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meghan88 said
Wealthsimple is getting really, really bad at communicating changes to rates, which are even hard to find on their site. And the amount of time it takes to transfer funds between accounts is bad, too.

Wealthsimple CASH rate is now 0.90%, down from 2.4% two months ago when the HISA rate was 2%.
Meanwhile, the Wealthsimple HISA rate is 1.55%.

So, they basically suckered people to switch to CASH from HISA when CASH was launched, then switched the rates.

And, transferring $ from WS CASH to WS HISA takes 7 days (!).

When they started their service offerings a few years ago, they were transparent and very responsive - I could get an answer in hours. Now it takes three days or more.

They are starting to chip away at other things, too. The Priority Pass is reduced to a total of 10 lounge visits/year, down from unlimited. Again, this was not communicated.

One more issue is an apparent inability to transfer the full balance including accrued interest from one WS account to another WS account, even though there's a clickbox for that. Seems there are always a few pennies left in the old account once the dust settles, which is a nuisance.

In short - I think they grew too fast and are overextending themselves.  

The two products are very different. Wealthsimple Save is a grandfathered product and no longer available to new sign-ups. As well, because of the way Save was set up, you are still the beneficial named owner of the deposit account held in your brokerage account, and thus CDIC insurance applies. Wealthsimple Cash is like a "savings stash" held in your brokerage account. It's in your name and you have a prepaid payment card linked to it, so you can access it. It technically does not pay you any deposit interest as Wealthsimple holds your funds in its account, in the name of Wealthsimple Payments, Inc., and it has agreed to pass on the deposit interest it receives in the form of taxable interest income. As well, because Wealthsimple Cash is not a deposit account beneficially owned by you, there is no CDIC deposit insurance. There is CIPF coverage, to $1 million per client, which protects you, more or less, from your brokerage firm being insolvent or otherwise going out of business, but if one of the financial institutions were to fail, you are not protected by CDIC. For that reason, do not use Wealthsimple Cash as a savings account; it is interesting as a payment and spending card, allowing you to earn a return on your monthly budget for your expenses, but that's it.

Cheers,
Doug

April 1, 2020
12:53 pm
meghan88
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Thanks Doug - that is helpful. They are not very transparent about all that.

But my annoyance continues: a few days ago I asked a question as to whether there was a limit as to the amount of funds I could transfer out. The belated reply didn't answer my question at all: instead, it described how to do a transfer.

I am looking forward to see what CASH will be like once the foreign exchange capabilities are launched. In the meantime I'm on the waiting list for Resolut to launch in Canada. Tired of getting the high FX rates on my big-bank credit card, not to mention the 3.5% to withdraw at the ATMs.

April 2, 2020
6:06 pm
Briguy
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Doug said

The two products are very different. Wealthsimple Save is a grandfathered product and no longer available to new sign-ups. As well, because of the way Save was set up, you are still the beneficial named owner of the deposit account held in your brokerage account, and thus CDIC insurance applies. Wealthsimple Cash is like a "savings stash" held in your brokerage account. It's in your name and you have a prepaid payment card linked to it, so you can access it. It technically does not pay you any deposit interest as Wealthsimple holds your funds in its account, in the name of Wealthsimple Payments, Inc., and it has agreed to pass on the deposit interest it receives in the form of taxable interest income. As well, because Wealthsimple Cash is not a deposit account beneficially owned by you, there is no CDIC deposit insurance. There is CIPF coverage, to $1 million per client, which protects you, more or less, from your brokerage firm being insolvent or otherwise going out of business, but if one of the financial institutions were to fail, you are not protected by CDIC. For that reason, do not use Wealthsimple Cash as a savings account; it is interesting as a payment and spending card, allowing you to earn a return on your monthly budget for your expenses, but that's it.

Cheers,
Doug  

The Cash account is down to 0.9% interest rate now, and lounge visits for those with over 100K investments are down to 10 per year since Oct 2019, from unlimited previously. Also, you aren't going to get the tungsten card, which is what I'd be wanting if I got this, unless you meet certain criteria.

April 2, 2020
6:34 pm
Doug
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Briguy said

The Cash account is down to 0.9% interest rate now, and lounge visits for those with over 100K investments are down to 10 per year since Oct 2019, from unlimited previously. Also, you aren't going to get the tungsten card, which is what I'd be wanting if I got this, unless you meet certain criteria.  

Thanks for the updates, @Briguy. Don't forget, too, that most airport lounges worldwide are either closed indefinitely, or have had their services significantly curtailed, as a result of COVID-19. While notionally temporarily, it's hardly a useful feature if it can't be used right now. sf-cool

I suspect they will make people pay for a metal card, like Mogo and Koho. Have you thought of switching to either of those, and just using a combination of either Mogo or Koho and Revolut?

Cheers,
Doug

April 2, 2020
7:08 pm
Briguy
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Doug said

Thanks for the updates, @Briguy. Don't forget, too, that most airport lounges worldwide are either closed indefinitely, or have had their services significantly curtailed, as a result of COVID-19. While notionally temporarily, it's hardly a useful feature if it can't be used right now. sf-cool

I suspect they will make people pay for a metal card, like Mogo and Koho. Have you thought of switching to either of those, and just using a combination of either Mogo or Koho and Revolut?

Cheers,
Doug  

I already have Mogo, Stack and Revolut, so I don't really need this, but I kind of wanted the tungsten card 🙂

April 3, 2020
9:38 am
Doug
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Briguy said

I already have Mogo, Stack and Revolut, so I don't really need this, but I kind of wanted the tungsten card 🙂  

Would you pay for it? If so, how much?

Cheers,
Doug

April 3, 2020
10:35 am
meghan88
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Out of Mogo, Stack and Revolut, which ones are the best for foreign exchange purchases abroad?

April 3, 2020
11:39 am
Doug
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meghan88 said

Out of Mogo, Stack and Revolut, which ones are the best for foreign exchange purchases abroad? 

For strictly foreign exchange purchases, I'd recommend Stack. I don't recommend them domestically due to no surcharge-free ATM network or ATM fee rebates, but for strictly purchases, 0% foreign exchange conversion fee puts them #1 on the prepaid credit cards list. For regular credit cards, I recommend, interchangeably, Brim Financial MasterCard and Home Trust Preferred Visa, which both offer no FX conversion fee. Rogers is sub-optimal for two reasons: (1) it's intended for Rogers/Fido customers to really benefit and (2) they still charge an FX conversion fee, but offer premium rewards to offset the fee. Note the premium rewards can be withdrawn at will, without advance notice, whereas a change to a fee requires 60 days notice.

For all-inclusive services, including free monthly credit reporting, cryptocurrency exchange (if that's your thing), loans, and spending cards, I'd recommend Mogo (but haven't used them). They also offer 1.5% cash back on purchases.

For ease of funds transfers and ATM fee rebates (manual, you have to request them), I'd go with Koho.

Revolut is interesting, but haven't used them. They are in "beta" mode, too. Probably best for rewards.

Cheers,
Doug

April 3, 2020
2:36 pm
Briguy
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Doug said

meghan88 said

Out of Mogo, Stack and Revolut, which ones are the best for foreign exchange purchases abroad? 

For strictly foreign exchange purchases, I'd recommend Stack. I don't recommend them domestically due to no surcharge-free ATM network or ATM fee rebates, but for strictly purchases, 0% foreign exchange conversion fee puts them #1 on the prepaid credit cards list. For regular credit cards, I recommend, interchangeably, Brim Financial MasterCard and Home Trust Preferred Visa, which both offer no FX conversion fee. Rogers is sub-optimal for two reasons: (1) it's intended for Rogers/Fido customers to really benefit and (2) they still charge an FX conversion fee, but offer premium rewards to offset the fee. Note the premium rewards can be withdrawn at will, without advance notice, whereas a change to a fee requires 60 days notice.

For all-inclusive services, including free monthly credit reporting, cryptocurrency exchange (if that's your thing), loans, and spending cards, I'd recommend Mogo (but haven't used them). They also offer 1.5% cash back on purchases.

For ease of funds transfers and ATM fee rebates (manual, you have to request them), I'd go with Koho.

Revolut is interesting, but haven't used them. They are in "beta" mode, too. Probably best for rewards.

Cheers,
Doug  

I wouldn't pay anything for a Wealthsimple tungsten card, I want it for free 🙂

I would say Revolut is the best one for foreign purchases and ATM withdrawals, since it has the best conversion rate,with up to 400.00 per month for free ATM withdrawals. One should convert the money ahead of time to the appropriate currency, since there's a surcharge on weekends. Revolut is in beta so you have to wait for them to issue you one.

I would say Stack is the next best for foreign ATM withdrawals and purchases, since there's no FX fee, and no ATM charge unless the individual owner of that ATM charges one.

Mogo is tied with Stack for foreign purchases and is the best for domestic purchases, but has charges for ATM machines. IT pays 1.5% cash back on CAD purchases and 3% cash back on foreign currency purchases which makes up for the FX. Mogo isn't issuing new cards at the moment, but should be soon.

I don't know much about Koho since I don't have one, but I'd say it's the least useful since it only pays 0.5% and has FX fees.

Brim basic no fee credit card has become a better value than Home Trust no fee credit card unless you need the Home Trust roadside assistance, which isn't a great one. That's because they pay the 1% cash back with no FX charges on foreign purchases with Brim, whereas you don't get any cash back on foreign purchases with the Home Trust CC although you get no FX charges.

April 3, 2020
3:31 pm
Doug
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Briguy said

I wouldn't pay anything for a Wealthsimple tungsten card, I want it for free 🙂

They don't generate a profit, why should they give away that metal for free? The banks don't even do that. And, they can afford to. 😉

I would say Revolut is the best one for foreign purchases and ATM withdrawals, since it has the best conversion rate,with up to 400.00 per month for free ATM withdrawals. One should convert the money ahead of time to the appropriate currency, since there's a surcharge on weekends. Revolut is in beta so you have to wait for them to issue you one.

Sounds confusing. I like simplicity.

I would say Stack is the next best for foreign ATM withdrawals and purchases, since there's no FX fee, and no ATM charge unless the individual owner of that ATM charges one.

Good points. Concur with that 100%. sf-cool

Mogo is tied with Stack for foreign purchases and is the best for domestic purchases, but has charges for ATM machines. IT pays 1.5% cash back on CAD purchases and 3% cash back on foreign currency purchases which makes up for the FX. Mogo isn't issuing new cards at the moment, but should be soon.

Mogo has an FX conversion fee on purchases. How is it tied? I agree their cash back of 1.5% is generous, but I'd say they're narrowly in second place.

I don't know much about Koho since I don't have one, but I'd say it's the least useful since it only pays 0.5% and has FX fees.

They offer Interac e-Transfer funding and unlimited, automated, and electronic linking of bank accounts, so you can make back-and-forth transfers just like PayPal. I think they also offer free Interac e-Transfer sending, too. Cash back is low, but it's comparable to the Tangerine Money-Back Credit Card at 0.5% and, typically, prepaid credit cards have never offered rewards. I wouldn't use it as a primary spending card necessarily, but say for online purchases or something, it's great.

Brim basic no fee credit card has become a better value than Home Trust no fee credit card unless you need the Home Trust roadside assistance, which isn't a great one. That's because they pay the 1% cash back with no FX charges on foreign purchases with Brim, whereas you don't get any cash back on foreign purchases with the Home Trust CC although you get no FX charges.  

Yeah, I'd agree with that, but I'd take anything I can get in terms of no FX conversion fee, so it's still a solid second place.

Cheers,
Doug

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