High-interest savings accounts will get attention in the financial world. Remember ING direct (now Tangerine) \with those catchy television commercials asking you to "save your money" and President's Choice savings account. Alas, those rates are no more. But EQ Bank has caught everyone's attention with their eye popping 3% interest rate, with no fees, no minimum balance requirements. The account allows daily transactions including bill payments, e-transfers, and moving money via computer or mobile phone with the emphasis on catering to mobile phone users.
What is even more interesting is that this is not a promotional or short term rate. It is here to stay as long as the bank needs it. The savings accounts are a small portion of EQ so it is manageable.
What is EQ Bank?
EQ Bank is well known in the alternative mortgage space, where it serves many clients whose credit profiles are too thin or too weak to secure loans from traditional banks. In their latest online only banking dubbed EQ Bank, they offer their high interest savings account of 3%, hoping to tap into the $400 billion dollars sitting in savings accounts that earn 0.2% to 0.6% per year at traditional banks. EQ Bank, since it is online only (Similar to Tangerine), has no branch network to pay for, a cost that the must be borne by traditional banks. EQ Bank mortgages typically have higher interest rates for their mortgages as their clients are in the A- or B category
How can the bank make money paying 3% interest?
EQ Bank's main business is high interest mortgages. They make money still offering a 3% interest rate, simply because of the spread from the mortgages to the savings account.
"Obviously we're not there yet, but we've made very good progress in a short period of time", says Andrew Moor, chief executive of Equitable Bank.
"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."
Their motto
"What we want to do is offer a product that people don't have to be constantly looking and checking to see what the rate is"
Some numbers to think about
$400 billion in bank accounts earning 0.2% to 0.6% at traditional banks.
Tangerine currently offering 0.8% interest on their savings account
Internet is now the main means of banking for 55% of Canadians, according to the Canadian Bankers Association
EQ Bank has set a target of opening 10,000 accounts in 2016
Competitors whose businesses are built on offering rates higher than traditional banks are responding to EQ Bank's launch by promoting additional features they offer, and boosting their rates.
Some have "come close" to matching the three percent savings rate but with short term offers only, Moor says
With this launch by EQ Bank, does it not seem deja vu all over again. This is what ING Direct did back in the glory days. With high rates and television ads using their pitch man and highlighting their orange colours.
What are your thoughts?
Would you open an EQ Bank account?
Sources : Canadian Bankers Association, Financial Post, EQ Bank
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