This week, I made a slight tweak to my savings account and it will result in my savings account earning 12.5x as much interest as I was earning before.
Yes – you read that correctly. I will earn 12.5x more interest by making one small adjustment to my automatic transfers.
At the time of this post, Tangerine savings accounts are paying 0.10% per annum. EQ Bank is paying 1.25% on its savings account. And lest you think that Tangerine pays the least amount of interest, have a gander at the Big Navy Blue Bank’s interest rates – 0.005%, and that’s if you’re in the right account. Otherwise, you might earn a big, fat 0.00% on your savings!
Let’s be clear. There is no way that I can possibly convince you that 1.25% is a fantastic rate of return. Even I think that 1.25% is a paltry interest rate for a saving account. Yet, the fact remains that 1.25% is 12.5x higher than 0.10%.
So I made a change that will earn me more interest. For the past decade or so, I’ve had an automatic transfer to Tangerine. Longtime readers will know that I’m a huge fan of automatic transfers. When I get paid, I send a chunk of money to my savings & investing accounts. I rely on the power of automation to do so. Up until this week, the automatic transfer whisked money from my daily chequing account and over to Tangerine.
A few days ago, I made the choice to switch my automatic transfer to EQ Bank. I’m still hiving off the same amount of money as before. It’s just going to a different location. And the higher interest rate at EQ Bank means that my money will compound faster. For the record, I’m not saying that it will compound very fast. I’m simply enjoying the fact that it will compound faster at 1.25% than it will at 0.10%, or at 0.005%!
Take a few minutes to look at the interest rate you’re earning on your savings account. If it’s less than 1.25%, then what’s stopping you from setting up an account at EQ Bank?
I understand why a lot of people hesitate to make investing decisions. There are so many options, and no one wants to make a decision that might result in the loss of hard-earned money. Some people would characterize those decisions as “mistakes.” I prefer to think of them as “learning opportunities.”
Switching to bank that pays a higher interest rate is not an investing decision that should paralyze you. You should find out if the financial institution is insured by CDIC. CDIC stands for Canadian Deposit Insurance Corporation. You can read more about CDIC here. In short, should a bank that is CDIC-insured go under, your savings account is insured up to $100,000. Do not keep your savings in banks that are not CDIC-insured.
For the record, EQ Bank is CDIC-insured and so is Tangerine. On that front, they are equals. Tangerine does not limit the size of your accounts. EQ Bank will accept your deposits up to $200,000. (I’m still trying to determine if that’s $200K per customer or $200K per bank account. After all, I did buy a lottery ticket this week and I’m feeling lucky.) Both banks allow you to have up to 5 sub-accounts under one customer number, and each sub-account can get its very own nickname.
In my humble opinion, both of these online banks are fantastic options for pursuing both short-term and medium-term financial goals. By using nicknames on your sub-accounts, each bank’s dashboard reminds you of your savings goals every time you log in. Personally, I’m saving for non-sexy stuff like property taxes and insurance premiums. Yet, I’m also saving for splurges that make life a little more comfortable – renovations to my home, spa days, satisfying my wanderlust. Your nicknames will reflect your goals and priorities.
When it comes down to brass tacks, I’m voting with my dollars. EQ Bank has a higher interest rate so my money will go there.
This is low-hanging fruit. Your money should be working as hard for you as you do for it. Put inertia to work for you. Spend the few minutes it takes to set up your savings account and your automatic transfer. Don’t stand in your own way of earning more interest. Once the transfer is set up, you need not tamper with it until such time as you hear about a CDIC-insured bank paying more than 1.25%. And if you do hear of such a mythical financial institution, do be kind and share that info with the rest of the class.