With the large number of financial institutions to choose from, it can be difficult to pick a savings account provider. To help you with that decision, we’ve compared the savings accounts offered by digital banks in Canada.
Digital banks conduct all their business online and don’t have hundreds of branches or offer teller-assisted transactions. This differs from traditional banks, which offer online banking as well as full-service banking in their branches. There are currently four truly online-only banks in Canada. Below is an overview of the best savings accounts in Canada from digital banks.
EQ Bank Savings Plus Account
The EQ Bank Savings Plus Account offers the highest interest rate out of all the digital and non-digital banks at 2%. The account has no monthly fee and provides you with five free Interac e-Transfers per month and free unlimited electronic funds transfers. With the ability to pay bills, transfer money, and send Interac e-Transfers, this savings account is similar to other banks’ chequing account offerings. However, you’re able to receive 2% interest on your funds compared to 0% with most chequing accounts. Additionally, with unlimited electronic funds transfers you’re able to transfer money between your EQ Bank account and your linked external account(s) at other financial institutions. EQ Bank also makes managing your money easier through its mobile app and the ability to set saving goals and track your progress. Compared to the usual minimum balance requirement, EQ Bank has a maximum balance ($500,000 for accounts opened before Feb. 21 or $100,000 for accounts opened on or after Feb. 21) that can be held per customer.
Zag Savings Account
The Zag Savings Account offers the second-highest interest rate compared to its digital bank competitors at 1.65%. The account has no fees and no conditions. Anyone can open up a Zag savings account and hold any amount of funds in the account as there’s no minimum balance requirement. Zag Bank also has a mobile app that allows you to manage your bank accounts, deposit a cheque (with SnapCheque), and transfer money.
Tangerine Savings Account
The Tangerine Savings Account offers an interest rate of 0.8% and a promotional rate of 2.4% for the first six months for new clients. Since the 2.4% interest rate is just a promotional rate, putting your money in a bank with a higher everyday rate will outperform this account in the long run. This is true for all accounts that offer a high initial interest rate (a teaser rate), which is then reduced to a lower everyday rate once the promotional period ends. New clients are also able to receive up to $50 in bonuses. Similar to its competitors the Tangerine Savings Account has no fees, no service charges, and no minimum balance requirements.
PC Financial Interest Plus Savings Account
The PC Financial Interest Plus Savings Account offers a 0.8% interest rate with no monthly fees or minimum balance requirements. The account also offers unlimited transfers between PC Financial accounts, which is beneficial if you already have other accounts with PC Financial.
Minimum balance requirements
A common theme you may have noticed in digital savings accounts is that there are no minimum balance requirements. This is also echoed in their chequing account offerings (if they have one) and differentiates them from their non-digital competition. Many banks require a minimum balance to waive the monthly fees required for that account (typical in chequing accounts) or to receive a higher interest rate (typical in savings accounts). Digital banks, however, typically offer accounts with a number of services with no monthly fee and no minimum balance requirements.
You may be curious as to why accounts with no minimum balance requirements are important. First, not everyone can meet the balance requirements for most regular savings accounts as they usually require anywhere from $1,000 to $5,000 to be in the account at all times. Second, with a minimum balance requirement, you’re effectively locking in your money and banks then lend that money to other individuals. You may be saying, “Well, yes that is how banks work.” But what’s the opportunity cost to you of holding a minimum balance?
Suppose you have $4,000 and you decide to put that into a bank with a tiered interest rate. Since you only have $4,000, you’ll earn anywhere from 0% to 0.25% in a tiered interest account. This is significantly lower than digital banks that offer a higher everyday rate of 0.8% or above. Thus digital bank savings accounts give you a better return on your money.
The bottom line
Make your money work for you! Find a savings account that provides you with the flexibility to hold any balance and still earn a high everyday interest rate!