There are chequing accounts, savings accounts — and then there are hybrid accounts.
The new accounts — offered by a collection of mostly fintech startups and credit unions vying for new customers — are billed as the best of both worlds. On the one hand, goes the pitch, consumers enjoy the flexibility of chequing accounts with features such as automatic bill payment and unlimited transactions. On the other hand, the accounts also come with some of the industry’s most competitive interest rates on deposits.
Online bank EQ Bank, for example, offers a hybrid account with features such as unlimited bill payments and free Interac e-transfers, no account fees and an eye-catching annual interest rate of 2.45 per cent, which may net you more than locking your money into a guaranteed investment certificate for a year.
Wealthsimple, a robo advisor, recently announced the launch of a no-fee Wealthsimple Cash account that pays 2.4 per cent interest and comes with a tungsten cash card you can use to withdraw money from ATMs across Canada.
Mobile bank KOHO has a hybrid account linked to a reloadable prepaid Visa card that lets consumers track their spending and their progress towards multiple savings goals through an app.
Manulife Bank also has a hybrid chequing and savings account, called Advantage Account, and so does IC Savings, an Ontario credit union.
Hybrid accounts are good news for many consumers, especially considering that surveys indicate many Canadians keep a relatively high balance in their chequing account, said Victoria Shinkaruk of financial products comparisons site Ratehub.ca.
Some do that in order to avoid minimum balance fees, while others just aren’t in the habit of transferring excess cash to a high-interest savings account. In any case, there’s evidence that many consumers have significant cash lingering in chequing accounts where it doesn’t earn interest or, worse, is subject to fees, which amounts to negative interest, Shinkaruk said.
And even when it comes to savings accounts, a cursory search through the Ratehub website indicates many currently offer below-inflation interest rates.
But if you normally use both a chequing and a savings account and find that keeping the two separate helps your budget, a hybrid account may not be appealing, Shinkaruk said.
“To mentally separate [your cash] into different buckets is a good savings technique.”
And if you can’t save and are constantly drawing down on your account balance, you’re not really taking advantage of those high interest rates.
Still, nothing prevents consumers from using hybrid accounts like more traditional savings accounts. And with KOHO, the app helps users keep spending and saving separate without the need for two accounts.
If you are considering opening up a hybrid account, Shinkaruk advises doing your research before you choose.
“These new accounts are all a little different from one another.”
Here are a few things to consider:
While hybrid accounts generally have competitive interest rates, there is considerable variation. Manulife Advantage Account, for example, currently has an interest rate of just 1.15 per cent.
Whenever comparing interest rates, Shinkaruk recommends looking at how much a certain balance will earn you throughout the year. Some accounts have promotional high interest rates that only last for a short period of time.
Not all hybrid accounts come with a card that allows you to get cash out of an ATM. For the ones that do, take a look at the network of ATMs you’d have access to without paying a fee — or whether the account will reimburse those fees.
Wealthsimple Cash, for example, says it will pay back ATM fees up to a monthly limit. The company told Global News it will provide more details on what the limit is once the feature becomes available.
Hybrid accounts aren’t always fee-free. The Manulife Advantage Account, for example, waives a number of fees only if you keep a minimum balance of at least $1,000. The IC Savings Perfetto Account has a monthly flat fee, while the KOHO Premium Visa card, which gives you two per cent cash back on select purchases, has fees of $84 per year or $9 a month.
Option to have a joint account
Not all hybrid accounts can be used as joint accounts. If you bank like you tango, check ahead.
Is your money insured?
You should also take a look at whether and how your money is protected. EQ Bank and Manulife Bank deposits, for example, are covered by Canada Deposit Insurance Corp. (CDIC), a federal Crown corporation that backs deposits of up to $100,000 per eligible account.
Deposits at credit unions like IC Savings are insured provincially.
Wealthsimple Cash accounts do not have CDIC insurance. The company said it deposits money in trust with federally regulated schedule I banks that are “chosen for their safety and security.”
Funds loaded onto KOHO’s prepaid card aren’t covered by CDIC insurance, either.