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A bank or credit union can play it three ways in offering savings accounts to customers.

One: Offer a competitive interest rate to everyone, all the time.

Two: Offer a junk rate and count on customers being oblivious.

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Three: Offer a competitive rate to some customers, some of the time.

My advice: Door No. 1. For almost everyone, it’s better to consistently get a very good rate than deal with a bank that pays a minimal rate and strategically offers out tasty rate bonuses to a select few.

Savings accounts are a big deal these days because they offer an efficient way for banks and credit unions to vacuum up money they can lend out at higher rates. The spread between rates on deposits and loans is a foundation of bank profits.

Rate bonuses are an increasingly popular strategy for competing in the savings account category, banking industry consultant David McVay says. Often, they’re used to lure new clients or convince existing clients to add new money. Clients with significant savings may also get a rate bonus if they threaten to move money to another bank.

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Tangerine, the online bank owned by Bank of Nova Scotia, currently pays 1.2 per cent on its savings account. But in a recent promotion, it offered 2.75-per-cent interest for six months to new clients opening a savings account, tax-free savings account or registered retirement savings plan. Note: If you get 2.75 per cent for part of the year and 1.2 per cent for the other part, your overall rate is a blend of the two rates.

Mr. McVay said banks with huge savings deposits such as Tangerine can’t afford to offer great rates to everyone and remain sufficiently profitable. So they offer rate bonuses in a targeted way that lets them appear generous in some instances while adding only incrementally to the total amount of interest paid.

Customer passivity makes it all possible. “Most people don’t proactively manage their rates that closely because, frankly, it’s an effort to call in to complain and it’s an even bigger effort to switch your balance to another institution,” Mr. McVay said.

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In an e-mailed response to questions, Tangerine said it “may offer varied short-term rates to current clients to help them save more, or we may offer a special limited-time rate to encourage new clients to experience the unique benefits of Tangerine.”

The Canadian High Interest Savings Bank Accounts website showed 14 online banks offering 2.25 per cent or more on savings as of mid-week. Some of these may be teaser rates from new players, but they’re at least available to everyone.

The major banks all have saving accounts paying around 1 per cent at best. Your only accomplishment if you keep serious money in an account like this is handing banks money they can lend out at rates of 4 per cent, 5 per cent or more, depending on the type of loan.

And then there’s the middle ground of online banks such as Tangerine and Simplii Financial (owned by Canadian Imperial Bank of Commerce), which have regular rates marginally better than the big banks and offer bonuses selectively.

Some people skim the best offers from all banks offering bonuses by keeping accounts at a variety of players and moving money between them to capture the highest rates. “That’s a lot of effort for a really minor return,” Mr. McVay said. “I would always recommend for someone to go to the 2.25- or 2.3-per-cent banks offering this rate all the time.”

In defence of Tangerine and Simplii, both add value to their savings accounts by letting customers partner them with no-fee chequing accounts. If you’re looking for the best overall value on both savings and chequing, Mr. McVay points to a new online player called Motusbank and Alterna Bank. Both are run by credit unions, not banks.

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In a recent market report, Mr. McVay said Motus and Alterna could be in for a long and painful process of building market share. They’ll have to compete like crazy on rates and fees, which means competitive savings rates and low fees for all. Does your bank offer this?

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