I do love how banks announce lower returns on savings by saying their interest rates are “changing.”
EQ Bank used that phrasing in an e-mail I received after the Bank of Canada lowered its overnight rate last week by half a percentage point, and so did Wealthsimple. EQ will pay 2 per cent on its personal account as of Oct. 29, down from 2.25 per cent; Wealthsimple started paying 2.75 per cent on its Cash account on Oct. 28, down from 3.25 per cent.
The Bank of Canada’s rate cut has been described as jumbo-sized and framed as an attempt to stimulate economic activity and ease the load for borrowers. But a rate cut of that size is also a blow to savers and people who park cash in their investment accounts. Saving for a wedding, home down payment, vacation or renovation? You’re now making substantially less interest.
The same applies for investors parking cash in their accounts. Returns from investment savings accounts, which are basically savings accounts sold through your broker’s mutual fund platform, are now in the area of 3.3 per cent, down half a point. Expect similar declines from high interest savings exchange-traded funds and T-bill or money market funds.
The “change” in rates at EQ and Wealthsimple is worth special note because of what it says about how alternative financial players operate. They take moves by the Bank of Canada into consideration, but strategic and competitive factors are also part of the decision-making process.
EQ was once a high-rate leader, but it’s now mid-pack on rates and concentrating on adding features and functionality to its account lineup. EQ is micro-targeting some customers by offering 3.75 per cent interest as of Oct. 29 on accounts where eligible direct deposits like a paycheque have been set up, and it seems to be holding the line on rates for its “notice accounts,” where withdrawals must be made with prior notification.
Wealthsimple is using a comparatively strong rate to attract people to its Cash account and then, potentially, to its investing and mortgage businesses. Like EQ’s personal account, Wealthsimple Cash can be used as a no-fee everyday transactional account with much better rates than big banks.
Savings rates are falling like leaves these days, but a couple of alternative banks were hanging tough as of late October. Neo Financial’s high-rate savings account remained at 4 per cent, while Koho was at 5 per cent.
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Rob’s personal finance reading list
Living small
A roundup of big city small homes, including a backyard house, a garden suite and a refitted trailer. Not for everyone, but lots cheaper than condos, townhomes and houses.
Top kitchen eyesores
You spent a bundle on your kitchen reno – don’t wreck the effect with these design and clutter glitches. Also worth a look if you’re selling your place.
The billionaire bump
The number of global billionaires hit a record high this year, and it looks like the past few years have been pivotal in this growth. The pandemic years were good for some people.
Do you know what’s in your RESP?
Royal Bank of Canada’s mutual fund arm reaches a settlement with regulators after clients with registered education savings plans did not receive about $1-million in Canada Education Savings Grant payments. CESG payments are the big attraction with RESPs – a 20 per cent match on contributions of up to $2,500 per year is available, or $500, to a lifetime limit of $7,200. A suggestion for parents or grandparents who have set up registered education savings plans for their kids or grandchildren: ask the investment company where the RESP is held for an accounting of contributions, investment gains and money paid into the account through the CESG.
Podcast fans
Subscribe to Stress Test on Apple podcasts or Spotify.
Calling all Gen Z’s
Are you under 30? Open to talking about your finances? The Globe is looking for young Canadians for our Paycheque Profile series. Basically, it is a non-judgmental look at how a working young person spends a month’s income. So how much is going to rent, to debt repayment, to going out, to savings, holidays, car payments, exercise classes, pet and or daycare. Especially interested in hearing from those living outside Canada’s big cities. Please contact personal finance editor Roma Luciw if you have questions or would like to participate.
Ask Rob
Q: Could you please do a piece on the prevalence of micro loans in consumer spending? I’m not sure if that’s what they’re called, but every time I buy something online I’m offered the option to purchase it in “a few easy instalments.”
A: This payment option is called buy now, pay later, and it’s being offered increasingly often when you pay for things online. I’m not a fan of BNPL – it basically offers a way to buy things you can’t actually afford.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools and guides
A province-by-province tax calculator that includes take home pay as well as taxes payable.
In the social sphere
Social Media: A Reddit discussion on what to do after a layoff.
Watch: An investment adviser gives a frank appraisal of analyst reports on stocks.
Money-Free Zone: Sending best wishes to musician Matthew Sweet, who had a serious stroke while on tour in Toronto. Sweet is a pop-rock great, a music lover with a couple of excellent albums of original material and a couple more featuring eclectic covers performed with Susanna Hoffs of the Bangles. Check out Sick of Myself, from a well-titled album called 100% Fun.
More PF from The Globe
- Not-so-smart things people do with their money when interest rates fall
- Time to buy? Some house hunters take a contrarian view
- More year-end tax strategies for investors to consider
- After an inheritance, should you keep your loved one’s financial adviser?
- Flight delayed or cancelled? You might want to ask about a business class rebooking