There are two ways to go if you want to wring all the interest you can out of your savings account - find a bank with a competitive rate or chase temporary deals offering great rates.
Lots of people are willing to chase great rates, which explains why banks keep offering them via temporary deals. The latest, greatest example is the 3.3-per-cent rate that Laurentian Bank of Canada’s digital arm started offering last fall on an online savings account. Last week, LBC Digital said the offer will end on March 1, when the rate falls to 2.8 per cent.
“Isn’t that a clear case of bait and switch,” asked a reader of the Carrick on Money newsletter.
That’s too harsh a term to use. Bait and switch means advertising a particular item and then substituting something that is either more expensive or inferior. What Laurentian Bank did was follow a popular script in banking in recent years. Offer a great rate, scoop up a bunch of new clients and then announce plans to ease the rate back down. Don’t be surprised if the 2.8 per cent rate that kicks in March 1 is in turn lowered at some future date. Right now, 2.8 is still very good.
Banks, like Laurentian, should do a better job of being clear that the above-market rate they offer at first is temporary. Yes, there are always asterisks and fine print. On the Laurentian website, the 3.3-per-cent rate was shown with a footnote saying that all rates are subject to change at any time without prior notice. A suggestion for banks planning a high rate introductory offer in the future: Call the offer a “welcome rate” or something like that, acknowledge that it’s temporary and then pledge to always be competitive.
If you’re willing to follow the rates offered by online banks closely and move money as needed to capture the best returns, then there’s no reason not to capitalize on offers like the one from LBC for as long as they last.
An easier to follow regimen is to find a bank that consistently offers competitive rates and stick with them. If you check the Canadian High Interest Savings Bank Accounts website from time to time, you’ll see a cluster of banks consistently offering 2.3 per cent or so and a few that are higher than that. Motive Financial has been offering 2.8 per cent on its Savvy Savings account for a while now.
Also, don’t be naive when looking at rates offered by new banks trying to get some attention. The Bank of Canada’s influential overnight rate is at 1.75 per cent and one-year Treasury Bills issued by the federal government have yields in similar territory. In mid-February, big banks were offering one-year guaranteed investment certificates with rates as low as 1.2 per cent.
LBC’s rate was out of sight in today’s ultra low rate world. You had to know it wouldn’t last long.
Rob Carrick