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opinion

The now-defunct era of low interest rates was a great time to borrow.

Similarly, the current period of high rates is a fine time to productively stow money you need to keep safe.

Precariously high debt levels attest to the enthusiasm Canadians applied to borrowing. We now have evidence that people are seizing the opportunity presented by high rates on savings and conservative investments.

Consider the online bank Motive Financial, which early this week offered a 3-per-cent return on savings and rates of 4.49 per cent and 4.85 per cent on one- and five-year guaranteed investment certificates, respectively.

Comparable rates at Big Six banks come in around 1.1 per cent to 1.4 per cent for savings, before temporary promotions, gimmicks or requirements to leave your money untouched for a period of time. Bank GICs are intermittently competitive, but there’s usually a lot of daylight between these rates and those available from Motive and its peers. This gap has not gone unnoticed.

“We’re seeing two to three times the monthly volumes of what we were looking at six months ago,” said Jeff Wright, group head of client solutions and specialty businesses at Canadian Western Bank CWB-PR-B-T, parent of Motive. “We’ve gotten to a place now where Motive and a few of our peers have gotten interest rates up to a level that is catching people’s interest.”

I opened an account at Motive recently and wanted to set up electronic transfers to and from a chequing account at another bank. After submitting the required form electronically, I got an e-mail back saying, “Please be advised that we are experiencing higher than normal application volumes. This will impact the timeline of linking your external account.”

It took six days to get the transfers arranged, which is fine because I wasn’t in a rush. In my job, I acquire high-rate savings accounts like other people collect coffee mugs. But the delay in accomplishing a simple administrative task is still notable because it’s a testament to the busyness of alternative banks.

Oaken Financial, another alternative bank with competitive rates, recently had to deal with account set-up delays that occurred as a result of an adjustment of returns on its various offerings that coincided with a technology upgrade. “When you put those two things together, it had the effect of creating a bit of a backlog for us,” said Mike Henry, executive vice-president of digital and strategy at Home Trust Co., part of the same corporate family as Oaken. “I would characterize that as something that’s temporary and short term and we’re working through it.”

Delays like these can be frustrating when you’re trying to open a new account, but it’s fairly minor when compared with delays the big banks inflicted last year on clients who wanted to open or administer investment accounts. Swamped by demand to open and manage investment accounts, these banks left clients hanging for hours in telephone queues.

Alternative banks have been a thing since ING Direct, now the Tangerine division of Bank of Nova Scotia BNS-T, appeared in Canada back in 1997. Higher rates than the big guys have been a consistent feature at alternative banks, but this advantage didn’t speak as loudly when interest rates were much lower than they are right now.

“I do think we’re having a moment,” Motive’s Mr. Wright said. “People are looking for a combination of safety amidst uncertainty, with a reasonable interest rate to actually make it worthwhile.”

In the investment industry, they’re taking shots at safe-money parking spots like savings accounts and GICs on the basis that the returns badly lag the 7.6-per-cent inflation rate. But these vehicles make a lot of sense when you’re willing to sacrifice the chance for better returns in order to insulate your money from just the kind of losses we see this year in stocks and bonds.

There’s financial market risk to consider when deciding where to put your money, and then there’s the risk of your money getting caught up in a financial company’s collapse. Before handing your money to an alternative bank or credit union, verify its membership in a deposit insurance plan.

The list of members in Canada Deposit Insurance Corp. can be found here. Motive Financial is listed under Canadian Western Bank, Oaken Financial under the related institutions Home Trust and Home Bank. Other players, some with better rates, can be found at HighInterestSavings.ca.


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