The Benefits of Online-Only Banks

A couple online-only banks have launched in Canada in the past few weeks. Besides offering higher rates, what are the benefits in banking with an institution that doesn’t have any branches?

New kids on the block

In mid-January, EQ Bank, a new, online-only bank launched its Savings Plus Account, which offers an interest rate of 3%. EQ has apps for Android and iOS, and states that its lack of retail branches allows it to offer a much higher rate than anyone else.

And just last week, a new digital player joined the fray: Calgary-based Zag Bank. Zag is offering a 2.5% interest rate on most of its products until June 1, and boasts an online and mobile experience that includes online chat and the ability to deposit cheques by taking a picture with your smartphone. Both of these new banks are looking to compete with Tangerine, the more established online player currently offering a 2.4% interest rate over six months. (Note that you’ll get a lower return on your money on many accounts with promotional rates over the long run; compare the best high-interest savings accounts to find out the one-year return.)

The fact of the matter is that most of the major banks also offer digital banking, and the idea of depositing a cheque by taking a picture is no longer new—CIBC and Tangerine have been advertising this for months now. While this might no longer be unique, what other benefits do online-only banks offer?

Fewer fees across the board

Tangerine, for instance, boasts of the fact that there are no daily fees, no service charges, and no minimum balances required for its Tangerine Savings Account. Likewise, the EQ Bank Savings Plus Account offers unlimited transfers and withdrawals, along with five free Interac e-Transfers per month. Many big banks charge monthly fees or transaction fees on some of their savings accounts, so this could be another selling point for the digital players.

Better signup bonuses

If you shop around, you can likely find a variety of special signup offers at most financial institutions. It’s important to note, however, that the free iPad usually isn’t free once you factor in account fees. But newer banks that are looking to establish themselves often have contests or other incentives with fewer strings attached. Right now, Zag Bank is running a contest in Alberta and B.C. called Savings Secrets, with a chance to win a cool $2,500. Meanwhile, Tangerine is giving $25 to everyone who opens an account and sets up an automatic savings plan of at least $100 a month.

Backed by bigger banks

There’s always some concern about investing money with a small, start-up company that might not be in business tomorrow. However, that’s simply not the case with these most digital banks. EQ is actually an offshoot of Equitable Bank, Canada’s ninth-largest financial institution with $14.4 billion in assets. Zag Bank is backed by Desjardins Group, which has $229 billion in assets and is a major player in Quebec, while Tangerine was acquired by Scotiabank in 2012.

So you likely don’t have to worry about your money going anywhere—the only question is, are you comfortable doing all your banking without a branch or ATM? With 55% of Canadians doing most of their banking online, it seems that many might not miss the personal touch.

Flickr: Paul Gregg