Battle for Canada’s high-interest deposit rates heats up

There's a fight for depositors going on in Canada's financial sector. In a bid to grab market share and lure clients with competitive interest rates on savings, President's Choice Financial this week said it is offering a 2.6 per cent rate on new deposits.

PC Financial, a discount bank partnership between Canadian Imperial Bank of Commerce and Loblaw Cos Ltd, says it is offering the annual interest rate on non-registered chequing and savings accounts until July 15.

The offer is currently the best on the market. "It's a great opportunity for Canadians who want to reap the rewards of a market-leading rate, while not paying bank fees," Barry Columb, president of President's Choice Bank, said in a statement announcing the rate.

That tops the 2.5 per cent offered by rival ING Direct, a subsidiary of the Bank of Nova Scotia. Peter Aceto, ING's chief executive, said he doesn't expect the discount bank will respond by hiking its rate, which is being offered until the end of June.

"The answer is no. We don't expect we're going to bump things up," said Aceto, but added competition is "very, very good for Canadians."

The Bank of Canada on Wednesday held rates steady at 1.0 per cent, where they've sat since September 2010, but the central bank also signaled any move in rates would be higher. In today's ultra-low rate environment, savings accounts have not been the greatest way to build up funds. Higher rates are a way of luring consumers as they seek better returns.

There's also the issue of Ally Financial. "There’s also an infusion of displaced former Ally customers in the market, seeking out a new high interest option for their money," says Ratesupermarket.ca, who notes the next closest range for savings accounts falls between 1.40 and 1.80 per cent.

"The online bank’s popular 1.8 per cent option was recently shut down by parent lender RBC, who in turn offered existing clients 1.2 per cent earnings on their deposits. Dissatisfied, many are turning to other banks for their savings needs – and lenders like PC Financial and ING are making a point of snapping them up."

The development comes following a controversial move by Federal Finance Minister Jim Flaherty, who intervened when some financial institutions promoted five-year fixed mortgage rates at below 3 per cent and sparked fears of mortgage price wars.