You know cash is a hot asset when Wealthsimple latches on to it for a new client offering.
Wealthsimple brought a zero-commission stock-trading app to Canada, plus crypto trading and access to venture capital and private credit. Starting this week, Wealthsimple has something for the many people stockpiling cash.
Up to $300,000 can now be parked in the Wealthsimple Cash account with deposit insurance for the full amount and an interest rate as high as 4 per cent. It’s a unique offer aimed directly at people who have been shuffling money around between banks to stay within deposit insurance limits and maximize interest. Definitely an older crowd than you might associate with the Wealthsimple brand, which has traditionally aimed at a younger clientele.
Cash is hot right now because interest rates remain high, because cash saved during pandemic lockdowns hasn’t been fully spent and because there’s a lingering hunger for security in these financially uncertain times.
“We see a lot of clients who want to hold on to cash for different reasons,” said Paul Teshima, Wealthsimple’s chief client experience officer. “It could be they have a large purchase coming up, or it could be that they just received a lump-sum bonus from this year. But they want to keep it in cash for short-term needs.”
Don’t get too attached to the 4-per-cent interest rate, which applies to clients holding at least $100,000 in deposits or assets across all their Wealthsimple accounts. The rate isn’t tied to any financial market benchmarks, which means Wealthsimple can lower it when targets for attracting new clients are met. A 3-per-cent rate is paid if you deposit at least $500 into your account every time you get paid; otherwise, you make 1 per cent.
Extra deposit insurance is an offer that stands out for the convenience it offers avid savers. Canada Deposit Insurance Corp. covers eligible accounts for up to $100,000 in combined principal and interest if a member institution goes under. While not a CDIC member itself, Wealthsimple acts as a sort of deposit broker by placing client savings in accounts at three or more different CDIC-member banks.
If you exceed $100,000 in savings with Wealthsimple, the company pours the excess into another account at another of the banks it works with. If you exceed $200,000, a third bank is used. Some U.S. financial companies have similar offers that increase the amount of coverage available from the Federal Deposit Insurance Corp.
Wealthsimple began in 2014 as a robo-adviser providing low-cost management of investment portfolios built with exchange-traded funds. The company has since expanded into stock and crypto trading and bank-like services through Wealthsimple Cash, which combines the utility of a transaction account and competitive savings rates.
The company’s $20-billion in assets have come mainly from clients who are under the age of 45. The offer of $300,000 in deposit insurance coverage suggests an attempt to reach out to older people with more substantial savings than those in the prime years of raising a family might have.
Regardless of your age, a Wealthsimple Cash account is an interesting alternative if you’re open to the idea of finding a single account for all or most of your savings and/or transactional account needs.
With no account fees, Wealthsimple Cash includes a prepaid Mastercard you can use to pay for purchases. Bill payments and e-transfers are also available, and there are no foreign exchange fees when you use the client card outside Canada. When you spend on the card, you generate 1-per-cent rewards. One more feature is auto-invest, which allows you to make recurring automatic purchases of stocks, ETFs or crypto at no cost.
The real test of Wealthsimple’s commitment to savings will be the length of time it continues to offer 4-per-cent interest, and the competitiveness of its future rates. In the banking world, savings rates are starting to creep lower and 4 per cent looks like quite a good deal right now.
Wealthsimple says its savings deposits have grown by about 15 times since the 4-per-cent offer was launched in March. Even with triple deposit insurance, that money might fly away quickly if the rate is cut too quickly or aggressively.
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