More Canadians are choosing to go digital with their banking, with recent stats showing that more than two-thirds of Canadians now prefer online and mobile interfaces for conducting their banking transactions. This increasing adoption of online banking is a boon to relatively newer entrants into the banking industry i.e. online-only banks.
Not many people like to pay the ever-increasing banking fees charged by traditional brick and mortar banks. Forget about ATM fees, NSF, overdraft, account transfer, transaction fees, and so on. What usually irks me is the monthly chequing account maintenance fees. I am simply unable to rationalize paying to keep money in my account when the bank is already making money off of it! Canadians pay in excess of $200 per year on average in banking fees.
Online-only banks come with their own pros and cons. A major differentiating feature between them and traditional banks is that they usually offer a no-fee, no-minimum balance chequing account and/or a high interest savings account. They also offer very little in the way of in-person assistance. Some of the major online-only banks present in Canada today include: EQ Bank, Tangerine, Wealthsimple, Simplii Financial, and Zag bank.
In this post, I compare the services offered by two of the most popular digital banks in Canada – Tangerine and EQ Bank.
Tangerine is a subsidiary of Scotiabank and was formerly known as ING DIRECT. They do not have branches, however, in addition to having access to their 24/7 call centre, you can walk into their pop-up locations, cafes, and kiosks around the country if you must speak to someone in-person. As a customer, you have access to over 44,000 ATMs around the world through Scotiabank’s Global ATM Alliance.
Tangerine Bank offers a suite of financial products including:
1) Savings: High-Interest Savings Account and GIC
3) Investing: Tangerine Investment Funds, TFSA, RRSP, and RRIF
4) Borrowing: Mortgage, HELOC, and RRSP Loans
General features you can expect on their savings and chequing accounts include:
- Zero monthly bank fees
- High-interest rates
- Interest earned on chequing account balance (up to 0.65%)
- Free and unlimited debit transactions, bill payments, and pre-authorized payments.
- No minimum account balance
- Automated Savings Program
EQ Bank is the online-only arm of Equitable bank – a Schedule I bank with total assets of approximately $24 billion. EQ Bank operates strictly online and they have no brick and mortar branches you can walk into. It is the overhead saved from not having to pay for building and other maintenance costs that they pass on to customers through higher savings interest rates. Although they are without a physical location, you can always reach someone to talk to via phone if you have any questions.
- No monthly fees
- No minimum balance ($100 minimum on GICs)
- High-interest rates
- Free unlimited electronic fund transfer
- Unlimited bill payments
- Five FREE Interac e-transfers per month
Tangerine vs. EQ Bank Comparison
1. Savings Rate: As of today (August 10, 2018), EQ Bank offers a 2.30% non-promotional interest rate on their savings account, while Tangerine is offering a 2.75% 6 months promotional rate and 1.25% thereafter. Let’s drill down into the numbers using a savings account with $10,000 and a 1-year term:
EQ Bank ⇒ $10,000 x 2.30%
Interest earned = $230 per year.
Tangerine ⇒ First 6 months ⇒ $10,000 x 2.75% x 0.5 year
Interest earned during the first 6 months: $137.50
Remainder of year (6 months) ⇒ $10,000 x 1.25% x 0.5 year
Interest earned during the last 6 months = $62.50
Total interest earned for Year 1: $137.50 + $62.50 = $200
EQ Bank wins this round by offering a higher interest rate overall. If we assume rates stay the same in Year 2, EQ Bank will still pay $230 interest on a $10,000 savings, while earnings on a Tangerine account drops to $125 (no promo rate in second year). The same scenario also plays out with GICs, with EQ Bank offering higher rates. Compared to the pittance offered by the major banks, these rates are good.
2. Convenience: Both banks generally do not have a brick and mortar presence, however, depending on your location, you may be able to find a Tangerine location if meeting people in-person is a requirement for you. Both banks have mobile apps that are accessible on both android and iOS devices.
If you are looking for an online-only bank that handles everything from chequing and savings to general investing, TFSA, RRSP, and RRIF, Tangerine is the better option. With Tangerine, you can realistically move all your banking needs over. EQ Bank has no chequing account, however, their savings account works like a hybrid account since you can deposit cheques into it and make bill payments. You can also connect up to ten accounts from other banks and transfers are FREE.
With regards to ATMs, Tangerine customers have access to over 44,000 ATMs worldwide. EQ Bank does not currently issue a debit card, therefore all transactions must be completed online.
Tangerine Bank wins the round on convenience.
3. Bonuses and Referral Program: Tangerine offers a cash bonus to new clients, generally ranging from $25 to $50. For example, when you sign-up for a new savings account with my special promo link, you get a $50 cash bonus. When you open a chequing account with this link, the cash bonus is up to $150! They also have a referral program where you and your friend/family get a bonus when you refer them to open an account. Winner – Tangerine.
EQ Bank does not have a similar referral/bonus program/offer.
4. Safety of Funds: Both EQ Bank (via Equitable Bank) and Tangerine are insured by Canada Deposit Insurance Corporation (CDIC). What this means is that your deposits are insured by CDIC up to $100,000 per account category (i.e. Savings, Chequing, and GICs). EQ Bank = Tangerine for this feature.
The factors that individuals take into consideration when choosing a digital bank will vary based on their needs and expectations. For some people, any monthly banking fee is anathema, and they want an online bank that can handle all their day-to-day banking needs – such as with Tangerine.
In some cases, you may just want to get the most out of your savings and GICs by earning the highest interest rate possible – such as with EQ Bank.