The hardest job in Canadian business is getting people to break away from the Big Six banks to try an alternative.
In good times and bad, customers stick to the big banks like bugs on a windshield. Alternative banks now offer dramatically better rates on savings and guaranteed investment certificates in many cases, yet people have been flocking to the big banks.
“In challenging times, there is a flow to quality,” said banking industry consultant David McVay. Looks like we need a broader definition of quality.
What the big banks offer is size, stability, longevity and a national network of branches. For a quality alternative, consider the EQ Bank Card launched Wednesday. Think of it as what results when a high-interest savings account gets together with what we should now call a transactional account – the term “chequing account” seems dated.
EQ is the online banking division of Equitable Bank, which describes itself as Canada’s seventh-largest domestic bank. EQ has been a top-tier innovator over its seven years of existence, even as its aggressiveness in offering top rates has waned.
The no-fee EQ Bank Card is a prepaid Mastercard that connects to an EQ Savings Plus account, elevating it to something more useful. “Our objective is to translate the Savings Plus account into an everyday bank account or a chequing account alternative,” said Mahima Poddar, senior vice-president and group head of personal banking at Equitable Bank.
There’s a bit of finagling required for this account, mind you. You have to transfer money from your EQ savings account to the new bank card online or via the EQ mobile app. Once you do that, you can pay for purchases wherever Mastercard is accepted and withdraw money from any ATM – that’s huge. EQ will reimburse you for any fees charged at ATMs in Canada.
Whether your money is in your EQ savings account or loaded onto the card, you earn the usual EQ interest rate – 2.5 per cent as of mid-week. This is what makes EQ stand out in alternative banking right now – you get a fairly high rate of interest and no-fee transactions combined in one account. Note: Savings Plus already offers no-cost e-transfers and bill payments, even without the new bank card.
Transferring money from your account to your EQ Bank Card happens in real time, so you can do it while waiting in line for coffee. If that still sounds annoying, consider the perks.
One is 0.5-per-cent cash back on every purchase – the money is deposited into your account each month. The other is no foreign transaction fees for purchases and ATM withdrawals outside Canada. When paying with a credit card outside Canada, you’ll typically pay a 2.5-per-cent fee in addition to the conversion of foreign currency into Canadian dollars at a wholesale rate.
Ms. Poddar said she’s been using a pilot version of the EQ Bank Card exclusively on trips to the United States. “It’s way cheaper than using any of my rewards credit cards.”
A fintech app called Koho already offers a prepaid Mastercard packaged with a savings account and a cash-back offer, but the interest rates were lower than EQ’s as of early this week. Koho also requires you to subscribe at a cost of as much as $9 a month to get the best rates and cash-back rewards.
Several online banks offer no-fee transactional accounts and high-interest savings accounts, but they’re separate products and require you to move money between them if you want to benefit from today’s elevated interest rates. As for the big banks, their all-inclusive transactional accounts cost roughly $15 a month and pay crumbs of interest at most.
EQ is a member of Canada Deposit Insurance Corp. through parent EQ Bank, so eligible deposits – up to $100,000 in principal and interest – are protected against bank insolvency. The big downside in using the bank for your everyday banking is not the risk of losing your money, it’s forgoing the chance to earn better interest through savings accounts offered by other alternative banks.
About 13 alternative banks had rates of 3 per cent or more as of mid-week, including Oaken Financial at 3.4 per cent and Saven Financial, offering 3.75 per cent for Ontario residents.
Why aren’t these and other alternative banks catching on with customers? Mr. McVay, the banking consultant, cited the flight to quality and the fact that none of the various players stand out.
EQ may have cracked that nut by offering a no-cost transactional account that earns respectable interest. If you’re stuck to a big bank, take note.
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