Wealthsimple got in touch with me the other day with some sad news I expect to hear a lot in the next 12 months.
“Our interest rates are dropping 0.5 per cent,” a Wealthsimple e-mail said. This means I earn 3.5 per cent on the money in my Wealthsimple Cash account, down from a crisp 4 per cent.
I keep track of rates on high interest savings accounts via HighInterestSavings.ca, which currently displays rate cuts at Wealthsimple and 10 other alternative banks. The Bank of Canada rate cuts we’ve seen this summer ease the pressure on borrowers a little, but they also mean lower returns for savers.
Savings rates don’t precisely mirror changes in the Bank of Canada’s overnight rate. In setting rates, banks also consider their internal need to attract money and what competitors are offering. For this reason, the declines in savings rates differ widely.
Some players have yet to cut rates – notable examples are Motive Financial and NEO Financial, which paid 4.1 and 4 per cent, respectively, as of early this week. While Saven Financial was at 3.85 per cent and Canadian Tire Bank at 3.7 per cent. Many others remain in the 2.5 to 3.5 per cent range, which looks OK in that inflation is running at 2.7 per cent.
Something to watch for as the Bank of Canada lowers rates further in the next 12 months is how Motive, NEO, Saven and Wealthsimple handle things. These challenger banks – that’s a term for alternative financial players – have used market-leading rates to draw customers. With rates falling, will they maintain their rate advantage for customers or quietly let it fade away?
For now, you can still get as much as 5 per cent through EQ Bank’s new notice account. You get 5 per cent, subject to change, if you provide 30-day notice for a withdrawal and 4.5 per cent for 10-day notice.
If you have more than a couple of hundred dollars in a high-rate savings account, stay on top of the interest rates you receive. Some banks will cut harder and faster than others.
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Rob’s personal finance reading list
Six retirement mistakes, and what to do about them
Well worth a read if you’re thinking a lot about investing and drawing in come in retirement. Dividends, the Canada Pension Plan, tax-free savings accounts and more are covered here. Now, for some thought on how to practice for retirement before you actually leave the workforce.
Just another day in Scam-o-polis
I include this item to encourage you to stay on guard 24-7 against scammers – OK, thieves – who are after your money in increasingly clever ways. In this case, fake QR codes have been displayed on pay-for-parking machines in Ottawa. The code takes you to a fraudulent website for paying for parking by phone. When in doubt about an e-mail, text or QR code, leave it alone. Do not download.
Stuffing cash and saving softly
A review of some of the latest terminology in personal finance, some of it new and some of it a re-branding of proven ideas that have been around for a while.
Toronto Life on the salaries of the city’s CEOs, athletes, politicians, educators and others. Surprises on the high side for sure, but some make less than you think.
Podcast fans
Subscribe to Stress Test on Apple podcasts or Spotify.
Ask Rob
Q: We are a healthy retired couple, 65 and 70 years old, with a bit over $600,000 in retirement savings all held in a balanced and short-term income fund with a local investment firm. Question: At our age should we have 98 per cent of all our savings in investments? Should we have more cash and if so, would GICs be the way to keep some monies a bit more guaranteed in case of a market slide?
A: Many financial planners suggest that retirees have enough cash or cash equivalent investments in their registered retirement income funds to cover two or even three years’ worth of living costs. If markets crash, this cash could be used instead of drawing on hard-hit investments. A ladder of GICs with maturities of one, two and three years is one way to structure the cash in your investment accounts. A more liquid alternative is to use an investment savings account, which is a savings product designed for investors that now pays around 4 per cent.
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
This is one of the best rent vs buy calculators I’ve come across. Expect to be surprised.
In the social sphere
Social Media: A Reddit discussion about the Canada Pension Plan. Some people wish they could have the CPP manage their personal registered retirement savings plan investments.
Watch: The most important lessons in investing. Number One is that you’re not that smart, relative to the market
Money-Free Zone: In 1967, a San Francisco band called Moby Grape released a self-titled album that is considered an all-time great psychedelic rock album. Maybe it’s that good. I’m not sure. What I do know is that a song on the album called 8:05 is a timeless classic of mellow, countryish rock that sticks in your head for days.
More PF from The Globe
– New rules for reporting bare trusts will spare a lot of families – why didn’t the government go this route to begin with?
– ‘Underconsumption core’: Young people flaunt their used stuff in new social media trend
– First-time home buyers are shunning today’s shrinking condos: ‘Is there any appeal to them whatsoever?’
– Tips for setting up your student’s first home without breaking the bank
