Some banks entice Canadians to open new accounts with the offer of a high but short-lived promotional interest rate. A generous interest rate might catch your eye, but there are a few things you should ask yourself before you sign up for a new chequing or savings account.
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Should you switch bank accounts for a promo offer?
Not everybody loves promo rates. In fact, a recent EQ Bank survey showed that more than half of Canadians (57%) prefer banks that give all customers the chance to earn a higher interest rate for their loyalty or engagement, with another quarter (25%) preferring banks that offer the same rate to all customers. Only a very small proportion (5%) prefer banks that offer promotions exclusive to a few customers even when it means they may not be included.
That said, if you’ve caught a banking ad promising an extraordinary interest rate, it’s natural to feel tempted, but there are a few pitfalls to be aware of. Often, to get that high rate, you must meet certain conditions—and after a certain time period, your rate reverts down to a less favourable one. But are these temporary rates worth the trouble? Below are the questions you should ask before you make the switch to open a new account.
1. What is the interest rate after the promotion ends?
Once a promotion ends, the account reverts to paying out the bank’s regular interest rate. Check the fine print to see how much that will be. Most regular chequing and savings accounts pay low interest—if any at all.
2. How long does the promotional rate last?
Promotional interest rates, while attractive, usually only last for the first few months after you open the account. With a large enough deposit, you might be able to squeeze some profit out of a promo rate, but will you keep the account when the promo rate ends? Furthermore, not all banks allow you to close an account online or over the phone—ask yourself if the promo is worth the hassle of visiting a branch to close your account.
3. What conditions do you have to meet to open the account?
The next step is to make sure you understand the terms and conditions on the account. To qualify for a promotional rate, you may have to be a first-time customer, bring new funds or make a minimum deposit. Beyond the promotional period, you might need to maintain a certain balance in the account to avoid paying monthly account fees. Each financial institution has different conditions, so read the T&Cs carefully. If you have questions, call the bank’s customer support.
4. Is the interest rate tiered?
Some banks in Canada offer premium rates to clients who make larger deposits, and lower rates to those with smaller amounts. Make sure you know what interest rate you’re getting.
5. What are the fees?
Many Canadian banks charge a fee for everyday transactions like withdrawals, e-transfers or paying bills through the account. Paying fees on your account could offset any gains made through your promo rate.
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