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Big banks slow to join savings game

From Saturday's Globe and Mail

One of the last refuges of big-bank complacency seems ready to fall.

Yes, it may soon be possible to receive a decent rate of interest on a run-of-the-mill savings account at a major bank.

Already, one of the big banks has made the move. Bank of Nova Scotia now offers 2.4 per cent on its Money Master high-interest savings account, a rate that applies to all customers and any balance.

The other four banking giants aren't in the game yet, but it's hard to imagine they won't come up with something to sharpen the competitiveness of their savings accounts.

Why would the big banks care about their savings accounts, as dull a product as there is in the world of finance?

For one thing, upstart on-line bank ING Direct has amassed about $7-billion in its own high-interest savings accounts. It's safe to say that most of this money would be rotting in traditional bank savings accounts if ING did not exist.

More importantly, people are looking for safe but still reasonably profitable places to put their money right now. Guaranteed investment certificates, Canada Savings Bonds and money market funds pay squat, while equity mutual funds are a crapshoot with the markets so uncertain.

In this environment, a high-interest savings account is an ideal place to park funds, even for a short while. Your money is completely liquid, meaning you can take it out at any time with no penalties, and there should never be any fees for moving your money around.

Rates are a prime concern, of course. It's important to note here that the rate on Scotiabank's Money Master account doesn't measure up especially well against the high-interest accounts offered by ING Direct, President's Choice Financial, Amex Bank of Canada and other alternative or non-traditional banks.

As of this week, you can get 2.75 per cent from ING, 2.80 per cent from Amex and 3.1 per cent from Outlook Financial, a tiny on-line bank operated by Manitoba's Assiniboine Credit Union.

There is an advantage to Money Master, however.

It's offered by a major bank, which means the customers of this institution don't need to go to the (minimal) trouble of approaching another bank they may never have heard of to set up an account.

Not that having a Money Master account is the picture of simplicity. Unless you're comfortable with phone or on-line banking, it's not for you.

The best way to think of Money Master is as a companion to a regular Scotiabank chequing account. When you want access to your savings, you call the bank or log onto its Web site to make a transfer into the chequing account.

These transfers are free and there's no limit on the number you can make. Now for the catch: if you take money directly out of a Money Master account through other means, then you'll pay a whopping $5 charge.

Scotiabank has a big marketing push on for Money Master that includes an offer of free day-to-day banking through a Scotia Powerchequing account for six months. If you keep $10,000 or more in your Money Master account, the fee waiver will continue to apply to the chequing account.

The really interesting thing about Money Master is that it uses the business model of ING Direct, PC Financial and the other on-line banks. By creating a "virtual" account that is best accessed electronically, Scotiabank can offer a higher than usual rate of interest.

The other big banks don't get this. Instead, they offer traditional savings accounts that pay little or that let you make more interest with large deposits.

For example, Bank of Montreal's Premium Rate Savings account pays 1.25 per cent on balances of up to $4,999.99 and 2.25 per cent on balances of $5,000 or more.

Canadian Imperial Bank of Commerce, TD Canada Trust and Royal Bank of Canada have more complex tiered savings accounts where a basic interest rate is tied to your deposit balance. You can earn a higher rate for larger deposits, but only on the amount that exceeds a certain threshold.

Scotiabank's newspaper ads for Money Master play up the fact that the account offers the higher savings rate of the Big Five banks. There's also a nifty chart showing how much more interest you can make with Money Master versus other banks' savings accounts.

The difference is considerable, which tells you one thing. If you're not in a high-interest account at Scotiabank, ING or anywhere else, then you're forgoing easy, risk-free growth for your savings.

Lots of people are doing just this. That's why so many of the big banks can afford to be complacent about the interest they pay on their savings accounts.

© The Globe and Mail

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