What Are Online Banks?
Disclaimer: This post contains affiliate links.
We’re all familiar with the Big 5 Banks in Canada. They operate brick-and-mortar branches and offer a ton of benefits and services. You can interact with bank tellers, withdraw cash, take out a mortgage or loan, get a bank draft, get a safety deposit box, etc. For the most part, people rarely need these services regularly but prefer face-to-face human interaction. In exchange for these services, banks have to make money. They make money by offering low interest rates on account balances, requiring a minimum account balance, and charging an endless list of fees.
On the other hand, online banks offer many of the traditional day-to-day services and offer high interest savings accounts with no minimum account balance. To provide these benefits, online banks don’t operate physical branch locations. Customer service is offered through telephone support. If the online bank is owned by one of the big 5 banks you can use their ABMs to withdraw money, otherwise online banks may refund ABM fees.
Are Online Banks Safe?
As long as the bank advertises that they are insured by the Canada Deposit Insurance Corporation (CDIC), deposits of up to $100k in each account are protected. This is the same deposit insurance that you get from a brick-and-mortar bank.
Simplii Financial
My first bank account in Canada was a President’s Choice (PC) Financial account. CIBC used to provide back-end banking services for PC Financial and in 2017 they went their separate ways. CIBC created a new online bank called Simplii Financial and took over everyone’s account. Simplii is CDIC insured.
There were a few benefits that drew me to Simplii back when it was PC Financial:
- No minimum balance
- Access to CIBC ABMs
- Free cheques
I use Simplii as my everyday online bank. I use it to pay bills and withdraw money from CIBC ABMs.
In the past, I needed a bank draft to pay for a car. Simplii charges $7.50 to deliver the bank draft by mail. They can also deliver the bank draft to a CIBC branch for a fee of $27.50. I opted to pick it up at the nearest CIBC branch because I didn’t want to risk the bank draft getting delayed by the postal service.
Occasionally, Simplii will offer a promotional interest rate on savings accounts. The downside to these promotional interest rates is that they only apply to new money that is transferred in and the payout happens at the end of the promo period instead of monthly.
Use my referral link when opening a Simplii Financial account. You will receive a $50 bonus if you maintain a balance of $100 for 30 days.
Tangerine Bank
The second bank account that I opened was an ING Direct account. When Scotiabank purchased ING Direct in 2014, it rebranded the online bank to Tangerine. Tangerine is CDIC insured.
My Simplii account wasn’t earning much interest. What drew me to Tangerine was that they consistently offered promotional interest rates. That didn’t change as part of the online bank rebranding. It offers many of the same benefits as Simplii:
- No minimum balance
- Access to Scotiabank ABMs
- Free cheques
- Frequent promotional interest rate offers
You can link other bank accounts to your Tangerine account. The best part is that you can initiate a pull from a linked account into Tangerine and you’ll start earning interest on the deposit before it clears.
Due to their regular promotional interest rate offers, Tangerine is where I keep the majority of my cash reserve. I also direct deposit my paycheque here. In addition to high interest rates, Tangerine also offers excellent GIC rates as well. I have a couple of GICs open at Tangerine. I transfer money from Tangerine to Simplii to fund my monthly spending.
Like at Simplii, promotional interest rates at Tangerine only apply to new money that is transferred in. However, the bonus interest is paid monthly. Deposits in a Tangerine chequing account do not count. To optimize payouts, what I do is a few days before the promotion ends, I transfer all of the deposits in my savings account into the chequing account. Once I receive a new promotional offer, I transfer the deposits in my chequing account into the savings account.
If I don’t receive a new promotional offer within a week, I will transfer the money to whichever online bank offers the current best interest rate. You can also risk contacting Tangerine customer service to get a promotional interest rate. If you don’t like the interest rate that the CSR offers, it is imperative that you don’t reject the offer. Doing so may disqualify you for future promotional offers. Instead, either accept the offer or say that you’ll think about it. But never say no.
Use my Tangerine Orange Key (40587930S1) when opening a Tangerine account. You will receive a $50 bonus if you maintain a balance of $250 for 60 days.
EQ Bank
The third bank account that I opened was an EQ Bank account. EQ Bank is CDIC-insured.
What drew me to EQ Bank was its high-interest savings account. Tangerine promotional offers are affectionally called a lottery because sometimes you get an offer and sometimes you don’t. While EQ Bank doesn’t offer the highest interest rate, it’s higher than traditional brick-and-mortar banks and Simplii. But everyone is eligible for the high interest rate; it’s not a lottery.
EQ Bank only offers a savings account that can be used the same way as a chequing account. It offers the following benefits:
- No minimum balance
- High interest rate
Like at Tangerine, you can link other bank accounts to your EQ Bank account. The best part is that you can initiate a pull from a linked account into EQ Bank and you’ll start earning interest on the deposit before it clears. This is where I keep my cash reserve when Tangerine doesn’t provide a promotional interest rate offer.
Traditionally, EQ Bank does not have an ABM access card. To access my deposits, I transfer money to Simplii. They now offer an EQ Bank prepaid card, but withdrawal from ABMs is not free (the ABM operator fees are not refunded).
While EQ Bank doesn’t offer higher promotional interest rates, they often offer some of the best GIC rates. I have a couple of GICs open at EQ Bank.
Conclusion
Do online banks spell the end for traditional banks? No. There is plenty of room for online banks and brick-and-mortar banks to exist. I still have bank accounts open at some of the Big 5. Scotiabank is where I opened my mortgage and where I have a HELOC. I also bank with TD now and TD offers free bank drafts. Some of the best consumer credit cards are offered by the Big 5. With certain account packages, you can get credit card annual fees waived. However, you must ensure that your account’s balance is above the required minimum to avoid costly monthly fees.