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rob carrick

Canada's newest bank could not have timed the introduction of its 3-per-cent savings account better.

Stock markets are falling, the dollar's a dud and the hottest topic in the country is the soaring cost of groceries. The comfort of a decent rate of return on a stress-free savings account would be most welcome right now, and that's just what you get with the new EQ Bank Savings Plus Account. The interest rate should be considered an attention-grabber and not a long-term commitment.

"Three per cent was deliberately chosen to be above the market and to make noise in the market in the short term," said Andrew Moor, chief executive of EQ parent Equitable Bank. "But certainly our goal is always to be offering a competitive rate."

Financial industry consultant David McVay said that's exactly how he'd manage the introduction of a new banking product. "Offer a no-fee account with a rate that is hard to resist, then reprice the interest rate down to something that is sustainable once you've had that initial market impact." He notes that it's easy to offer 3 per cent at the beginning, when it applies to only a small deposit base.

EQ calls itself a digital bank, which reflects the fact that you access it online or via a mobile device. There are no branches or paper statements, and you can sign up online without having to mail in documents. EQ describes itself as an example of fintech, or digital technology applied to banking and finance, but it's just as much an evolution of the sort of online banking introduced to Canada by ING Direct (now Tangerine) back in 1997.

It's on rates that EQ really stands out. In today's world of diminishing returns, 3 per cent is huge. Online banks Tangerine and President's Choice Financial paid 0.8 per cent on savings accounts as of mid-January, but you can get as much as 1.5 per cent to 1.75 per cent from credit unions and small online banks. Try finding a five-year guaranteed investment certificate that pays 3 per cent – I don't think you can.

There are three reasons to jump on the EQ Bank offer, even if it does turn out to be temporary. One is that 3 per cent, for however long it lasts, is a great return for no-risk money. Most savings accounts fall well short of the inflation rate – this one doubles it.

Second, Equitable Bank is a member of Canada Deposit Insurance Corp., the federally backed agency that protects savings deposits for up to $100,000 each. Equitable is Canada's ninth-largest domestic bank, with about $14.4-billion in assets and a specialty in mortgage lending.

Third, the EQ Bank Savings Plus Account represents a modest breakthrough in Canadian banking. In addition to offering a high interest rate, it also provides some of the functionality of a chequing account. You can't write cheques, and there's no debit card, but you do get five free Interac e-transfers, which are an excellent cheque substitute that works by e-mail, and unlimited no-cost online bill payments.

Mr. McVay said online savings and chequing accounts have up until now been kept separate because it benefits banks. They pay little or no interest on chequing balances, which means they're a near-free source of funds to profitably lend out to other customers. He says there's an average $5,000 sitting in chequing accounts.

Adding the ability to pay bills and transfer money to a savings account is a convenience feature. It allows you to use your savings to pay bills without waiting the one to three days it takes to electronically transfer the money to the bank where you have your chequing account.

Tangerine offers both a savings and a chequing account, and it's easy to move money between the two in real time. But the savings account's interest rate is short of 1 per cent, while the chequing account offers 0.25 per cent for balances below $5,000 and a bit more for higher amounts.

EQ's 3-per-cent rate may prove temporary, but so could the bank itself. Innovative online banks in Canada have a way of either being wound down or absorbed by larger competitors. It happened to Citizens Bank of Canada and Ally, and ING was bought by Bank of Nova Scotia (and later renamed as Tangerine). But that's just trivia for the time being. EQ's 3-per-cent rate is real, and you should grab it while you can.


The 411 on EQ Bank

What is it?

A new digital bank from Equitable Bank, Canada's ninth-largest independent domestic bank, which is in turn part of a publicly traded company called Equitable Group (EQB-TSX); Equitable Bank is primarily a mortgage lender.

What's the pitch?

A 3-per-cent rate on savings, with no monthly fees and no minimum balance requirements.

Anything else?

You can make unlimited online bill payments from your account, and you get five free Interac e-transfers per month.

What's the catch?

The 3-per-cent rate won't last, but EQ says it aims to stay competitive; also, no branch network or ATM access.

What's the competition?

Several small online banks offer 1.75 per cent; Tangerine and PC Financial pay 0.8 per cent on their savings accounts.

How safe?

Equitable Bank is a member of Canada Deposit Insurance Corp.

TFSA accounts?

Not available just now.

More info