Are online-only banks safe?

^{This post is sponsored by EQ Bank. The views and opinions expressed in this blog, however, are my own.}

It can sound almost too good to be true: earn up to 30 times more interest¹ than what the big banks offer on savings accounts with no minimum balance requirements or withdrawal fees. But that’s what online-only EQ Bank is offering.

At a time when savings accounts from many traditional brick-and-mortar banks earn a meagre 0.01% to 0.05% with overly complicated tiered interest rates, EQ Bank’s Savings Plus Account keeps things simple with an impressive flat 1.25%². The digital bank’s savings account also offers additional perks typically reserved for chequing accounts like free e-transfers, the ability to pay and schedule bill payments, and even send international money transfers (at far more competitive rates).

These are the advantages you get with an online-only bank. Since EQ Bank doesn’t manage huge budgets on physical bank branches, they can afford to compete with higher rates and more benefits.

But, if you’ve never banked with a digital-only financial institution before, you may be apprehensive and wonder: are online-only banks really safe? The short answer: absolutely. Read below to learn exactly why.

1. Your money is federally insured with CDIC

If you’re depositing money in a bank – whether it’s just a few hundred in cash or tens of thousands of dollars – you want to be confident your money is protected, even in the most implausible worst-case scenarios. Like, if your bank were to close down.

Enter the Canada Deposit Insurance Corporation – or CDIC for short.

Founded over five decades ago by the Federal Government of Canada in an act of parliament, CDIC is a non-profit Crown Corporation whose purpose is to protect the deposits you hold at reputable and recognized member banking institutions.

Many online-only banks are CDIC members just like the big banks, giving you the peace of mind your deposits at EQ Bank³ are protected to the same degree as any traditional bank. Being federally insured, CDIC covers up to $100,000 of your cash held your savings and GIC accounts.

Since CDIC’s launch, no one in Canada has lost a single dollar of their deposits due to the closure of a member bank. The deposits you hold at CDIC member institutions are automatically protected and you don’t need to pay anything extra out of pocket for the coverage.

You can see a full list of CDIC insured banks and credit unions – both brick and mortar and online-only – here.

The kicker: While you have the same protections as the big banks, you can take advantage of the higher interest rates offered by online-only banks like EQ Bank. The Savings Plus Account, for instance, earns interest that’s up to 30 times greater than some of the savings accounts offered by the big banks.

2. Online banks have deep ties to older and bigger institutions

While many online-only banks recently broke into the Canadian banking scene (EQ Bank was launched in 2016), that’s just half the story. Most digital banks have deeper roots and are owned and backed by major financial institutions with decades of history operating in the financial industry.

EQ Bank, for instance, is a trademark of Equitable Bank Group Inc., an organization first founded in 1970 as The Equitable Trust Company that has climbed the ranks to become the ninth-largest Schedule I bank in the country. Wondering what a Schedule I bank is? It’s any bank that’s both Canadian owned and capable of holding deposits, and encompasses a list of 33 banks including the traditional big six.

Equitable Group Inc. is a publicly-traded company with over $33 billion in assets under its management and 900+ employees, offering a mix of mortgage products, commercial banking solutions, and lines of credit, along with high-interest savings accounts and GICs.

EQ Bank’s board of directors also includes heavy hitters in the world of Canadian finance including President and CEO Andrew Moor – former chairman of the Canadian Association of Accredited Mortgage Professionals and currently on the Executive Committee of the Canadian Bankers’ Association – and Lynn McDonald, former Managing Director at CIBC World Markets.

3. Online banking security

Online-only banks live on the web, and have the same top-of-the-line digital security features you’d expect from a traditional big bank.

EQ Bank employs multiple layers of protection with data encryption, fraud monitoring, security questionnaires, strong password requirements, and regular internal audits of their security systems. They have additional protections against unauthorized fraudulent activities, so if a fraudulent withdrawal was made on your account by anyone but you, you’ll be reimbursed 100%.

EQ Bank also offers the ability to set up two-step verification for enhanced security that requires you to first login with your account password, then a second temporary code that’s sent to your phone. Finally, EQ Bank’s app offers fingerprint and face ID login as well.

The feature I like most is setting custom alerts for activity on my account. For instance, you can get notified any time your account balance drops below a certain amount, or when a withdrawal or payment is made. You can even personalize alerts to only notify you when it involves a specific amount of dollars. Personally, I’ve customized my own EQ Bank account to alert me anytime $1,000 or more is taken out of my account.

4. The latest digital security and encryption technology

When creating a new bank account, moving money between your current bank and your new bank can prove tedious. Usually, you’ll have to rely on any mix of e-transfers, money orders, void cheques, and even calling up your bank (which inevitably means you’ll be put on hold).

EQ Bank uses the latest and most secure digital technology to make it easier.

One of the first steps in opening an account, like the Savings Plus Account, is to link another bank account with EQ Bank. This helps to both verify your identity and seamlessly transfer money over.

The process of linking accounts is enabled through Flinks, a leading Canadian technology company trusted by hundreds of major financial institutions (National Bank of Canada and Manulife to name a few). Flinks is protected with the highest levels of security compliance and encryption technology. In technical terms, that includes PCI-DDS and SOC2 compliance as well as HTTPS 256-bit and AES-256 encryption.

What does that all mean? In short, your bank account information is scrambled into a unique 78-digit code that would take a supercomputer well over a million years to crack. Plus, at no point does EQ Bank view, access or store your details from your other bank account. When linking accounts for the first time, you’re required to sign-in using your original bank login and answer security questions to protect your account and ensure it’s really you.

With linked accounts, you can transfer any amount of money back and forth between your current bank and EQ Bank up to $30,000 per transfer. Plus, with EQ Bank, you can also take advantage of free Interac e-Transfers® and mobile cheque deposits.

The bottom line

Online-only banks like EQ may be smaller and lesser-known than the traditional big six banks, but with federally insured accounts, ties to reputable billion-dollar institutions, and the latest security and encryption technologies, they are proven to be just as safe.

^{This post was sponsored by EQ Bank. The views and opinions expressed in this blog, however, are purely our own. EQ Bank is not responsible for maintaining or monitoring the accuracy of information on this website.}

^{1 Based on research conducted by Equitable Bank comparing HISA interest rates of Canada’s ‘Big 5’ banks over a 12-month span on an investment of $100. Assumes no additional deposits or withdrawals made. Research considered comparable high-interest savings account interest rates based on data taken from public websites as at June 19, 2020. Promotions and Rate Premiums are excluded.}

^{2 Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.}

^{3 Equitable Bank is a member of CDIC. EQ Bank is a trade name of Equitable Bank. Deposits made under EQ Bank and Equitable Bank are aggregately eligible for CDIC protection up to $100,000, per insured category, per depositor.}