Gordon Pape: The worst place for your money is gradually improving

Be honest. Did you keep a lot of your money in the worst possible place for years?

Most people did, probably without realizing it.

What was it? A savings account. The bedrock of many people’s finances.

Many years ago, savings accounts paid a decent rate of interest, and people could use them as a basic wealth-building tool. But that’s history. The big banks dropped their rates for savings accounts into microscopic territory years ago. You might have found higher returns from a smaller bank or credit union, but nothing to get excited about.

Well, the world has changed – at least at some financial institutions. Many now offer high-interest savings accounts with attractive published rates. But you need to do some research before you sign up.

A search on ratehub.ca reveals several respectable options for those who are willing to switch. Some are with small online institutions, but a few bigger players are trying to build their deposit assets with deals.

The highest rate I could find was 5.25 per cent. It was offered by three companies: the Bank of Nova Scotia BNS-T, Duca Credit Union, and Simplii Financial. However, in each case it came with a catch. With Simplii Financial, the rate plunged to 0.4 per cent after 150 days. ScotiaBank was better, with the rate falling to 1.4 per cent after the same period. Duca’s rate dropped to 1 per cent after Jan. 1, 2024.

Several other companies also offer short-lived promotional deals with starting rates between 4.05 per cent and 5.1 per cent.

Of course, savings account rates can rise or fall at any time, but I think most people would prefer less dramatic changes. For greater consistency (but no guarantees), look at the Motive Financial Savvy Savings Account. It is currently paying 4.1 per cent, with no minimum balance. Transaction fees are $5, so don’t plan to use it as a chequing account. Your money is CDIC insured up to $100,000.

Several other small companies offer high-interest accounts in the 3 to 4-per-cent range.

Surprisingly, in light of the rapid rise in interest rates over the past year, some financial institutions continue to low ball savers. For example, a TD High Interest Savings Account pays nothing if your daily closing balance is below $5,000, according to the bank’s website. Otherwise, the bank pays 0.5 per cent. However, TD TD-T also offers its TD Investment Savings Account (TDB8150), which is currently paying 4.55 per cent. There’s also a U.S. dollar version (TDB8152) that has a posted rate of 4.65 percent.

Here are some tips for choosing an account.

Ask questions. Offers are changing all the time. Rates found on the internet may be withdrawn within a few days. Verify with the financial institution that the posted rate is really what you are getting.

Negotiate. Bank managers and some advisors are authorized to give higher unadvertised rates to good customers. It never hurts to inquire.

Read the fine print. Know all the details about the account you’re considering. Is the current rate for a specific, limited time? Is there a minimum balance? Are there transaction fees? Don’t make a decision until you have answers.

Look at the history. What is the company’s interest-rate history? Some smaller companies such as EQ Bank and Oaken Financial have offered above-average returns on their high-interest accounts for years. That’s reassuring when you know your rate can change at any time.

Check deposit insurance. Every reputable financial institution offers deposit insurance. The Canada Deposit Insurance Corporation protects your assets up to $100,000. Some provincial plans, which are mainly used by credit unions, offer even more protection. However, their soundness has never been tested under extreme financial conditions.

The bottom line is you can get more for your money. You just need to do a little work.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.

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