High interest in high-interest savings accounts

Canadians’ reputation as savers has slipped in recent years, but that hasn’t slowed the competition between financial firms offering high-interest savings accounts, an increasingly popular product for advisors with clients who want a safe and accessible place to park their money, and want some growth to boot.

Altamira, ING Direct, Manulife, Dundee Wealth Bank, and ICICI Bank of Canada are just some of the names in this space, all offering attractive interest rates to investors and many offer carrots in the form of trailer fees to advisors.

In a little under three-and-a-half-years, the market for this type of product has ballooned in Canada to $44 billion.

On Thursday, Altamira increased the interest rate on its Canadian dollar high-interest Cash Performer rate to 3.5%, from 3.25% and upped the rate on its U.S. dollar version to 4% from 3.75%. The increases do not impact the 0.25% trailer fee it pays to advisors, which has been extremely popular since it was introduced at the end of 2004. “It has definitely helped interest,” laughs James Whitman, the newly appointed senior vice-president of sales and service at Altamira, who refused to provide further details.

Altamira’s net sales, as reported to IFIC, suggest the Cash Performer is indeed doing well. Although the firm’s mutual fund sales in net redemptions to the tune of $29 million in March, non-mutual fund assets were $361 million, creating net sales of $332 million.

Personal deposits at National Bank, Altamira’s parent, grew $2.4 billion in 2005, according to the company’s annual report, “mainly due to the high-yield deposit account offered by Altamira.”

“We are trying to stay a leading provider in that space,” Whitman says. “Our funding on our side allowed us to increase the rate.”

This is the third time Altamira has increased the interest rates on these accounts. The last increase was just in February, when it bumped it up 15-basis points from 3.15%.

The move comes about a month after the Canadian-arm of ICICI Bank inflated the rate on its Canadian currency savings accounts to 3.5%.

What might come as a surprise to some advisors is that ICICI, like Altamira, pays a 0.25% trailer to advisors. Currently, the bank uses about 60 hand-picked IDA and MFDA registered firms. The bank used to pay a bonus to advisors who surpassed certain targets, but that program has ended now that the bank’s total assets have surpassed $1 billion in Canada.

According to ICICI vice-president Sriram Iyer, the bank has about $400 million invested in high-interest savings accounts, which average about $10,000. The balance of the money at the bank is invested in term-deposits, which pays advisors 1.2% upfront.

ICICI has four branches in Toronto and one in Vancouver, but the high-interest savings accounts are only available online, because of the lower administration costs.

As for the other competitors, Manulife’s Advantage account pays 3.1% and its registered version of the account pays 3.25%. Dundee’s high-yield savings account also sits at 3.25%.

ING, arguably the most recognized consumer brand in this category, has fallen behind. Its Investment Savings Account is paying 3%, although the online bank does offer short-term GICs that start at 3.5%. ING also pays a trailer of 0.25% to advisors on its Investment Savings Accounts and has a network of 3,000 qualified advisors.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(04/20/06)