Thursday, March 29, 2007

RBC Offers High-Interest Savings Accounts

The Globe and Mail, Rob Carrick, 29 March 2007

You'll never believe who just came out with the sort of high-rate savings account that everyone needs for safely stowing cash.

It's Royal Bank of Canada, the country's largest and possibly most recalcitrant bank from the perspective of innovation for retail customers. I mean, this is an outfit that used to charge people to use Internet banking.

The High Interest eSavings account is a credible effort from RBC, with reasonably competitive interest rates (don't be fooled by the 4-per-cent introductory rate) and no tiers that reserve top rates for higher balances. Consider this new account as evidence that the big banks are no longer willing to be big stiffs when it comes to high-interest savings accounts.

RBC got in the high-interest game just this month, while HSBC Canada is another recent arrival. Bank of Nova Scotia and Bank of Montreal were early adopters, while Canadian Imperial Bank of Commerce is planning upgrades to an offering that, like the one from Toronto-Dominion Bank's TD Canada Trust division, offers high rates only if you have at least $5,000.

High-rate savings accounts usually work on the idea that a bank can offer better returns on accounts that clients access electronically and not through branches. Ten years after the arrival in Canada of Dutch-owned ING Direct, it's clear that a bank without a high-interest account is a bank that is losing assets. ING now has more than $20-billion in assets and you can bet that a massive chunk of this used to reside in traditional big-bank savings accounts.

Doug Collins, RBC's vice-president of consumer accounts, was cagey about this issue. "There's always a transfer of funds back and forth," he said. "But what we're trying to do is meet the needs of clients who are asking for this kind of account, and trying to ensure we have a relevant account lineup."

The eSavings account will certainly meet your needs if you're an RBC customer who banks online and is willing to make a bit less interest in exchange for avoiding the hassle of shifting money to and from a savings account at another bank. Mr. Collins said money transferred from eSavings into an RBC chequing account moves in real time, which means you avoid the usual 24 to 48 hours required for bank-to-bank electronic transfers, and any subsequent holds on the transferred money.

The introductory 4-per-cent rate on eSavings lasts until July 31. The rate is projected to then fall to 3.25 per cent, which compares with current rates of 3.5 per cent at ING Direct, 3.55 per cent at Citizens Bank of Canada, 3.75 per cent at Manulife Bank and ICICI Bank Canada, 4 per cent at President's Choice Financial (for balances of more than $1,000) and 4.1 per cent at the online banks Achieva Financial and Outlook Financial.

Any of these rates stand out in comparison to the laughably low rates that banks offer on traditional savings accounts. RBC's own Royal Money Maker Plus starts at zero per cent on balances to $4,999.99. It then surges all the way to 0.25 per cent on balances of $5,000 to $9,999.99, and moves all the way up to 3 per cent if you have $60,000 or more on deposit. Don't forget the fine print: The 3-per-cent rate is applicable only to the portion of your deposit above $60,000.

Another qualification on eSavings -- you have to be comfortable with Internet banking. The idea is to keep money in the account to earn high interest and then go online to shift funds into your RBC chequing account when needed. You can make withdrawals directly from eSavings using bank machines, debit or cheques, but you'll pay $5 a transaction.

That's a similar approach taken with Scotiabank's Money Master account, which was introduced almost five years ago and now offers 3-per-cent interest. BMO's Premium Rate Savings Account is also a few years old and pays 2.6 per cent, while HSBC's new Direct Savings Account pays 3.5 per cent.

The HSBC account is notable because of how user-friendly it is. Though you can't access it through HSBC branches, you can deposit cheques or make no-fee withdrawals through a network of 4,100 bank machines (HSBC, Bank of Montreal and a network called The Exchange), and you get free bill payments.

TD offers 3 per cent on its Guaranteed Investment Account, but you need a $5,000 minimum to qualify. CIBC's Bonus Savings Account now pays 0.1 per cent for balances below $5,000 and 3.05 per cent for higher amounts (yes, the entire balances qualifies), but it will shortly bump those rates up by 0.95 of a point.

If you already have a high-rate account at the likes of ING, then there's no reason to use the high-rate savings accounts offered by the big banks unless you like the added convenience. If you've never had a high-rate account, the big banks are making it easy to get one.