Canadians are increasingly parking cash in liquid, high-interest savings accounts from virtual banks such as ING Bank Canada’s ING Direct and President’s Choice
Financial, a joint venture involving CIBC and Loblaw Cos. Ltd.

This represents a change from past savings practice, in which Canadians favoured products such as money market mutual funds or Canada savings bonds for emergency
funds or temporary savings.

These accounts generally have no fees or service charges, and no minimum balances, but the main attraction is the comparatively high rate of return. At press time, ING Direct’s investment saving account paid interest of 2.4%, for example; online accounts offered by some provincial credit unions paid 3.1%. Those rates compare favourably with many money market funds (see story on page 32).

High-interest savings accounts now represent a 12% share of the “core liquidity” market, up from less than 2% five years ago, according to recent data from Toronto-based Investor Economics Inc. (Core liquidity refers to investments that present no risk to capital and are fully liquid.) And a significant portion of that is not finding its way into the hands of the Big Five banks. Although the major banks can lay claim to a 68% share of the money market arena — in the high-interest space almost 95% of the money is divided among TD Bank, ING Direct, Bank of Montreal, Bank of Nova
Scotia and PC Financial, Investor Economics reports.

Fighting for space, niche players such as ICICI Bank Canada, a subsidiary of India’s largest bank, Mumbai-based ICICI Bank Ltd. , also opened their virtual doors recently and offer high-interest-rate accounts, as do regional institutions such as Achieva Financial, a division of Winnipeg’s Cambrian Credit Union, and Outlook Financial, a division of Manitoba’s Assiniboine Credit Union. These operations, like their larger competitors, deal directly with the client, generally over the Internet.

This is where Ian Dillon, chief investment strategist at Altamira Investment Services Inc. , saw an opportunity. Struggling with redemptions and not seen as a fund company that catered to the independent advice channel, Altamira recently repackaged an existing high-interest savings account to make it more useful to advisors. Like most other accounts, the new High-Interest CashPerformer service has no fees or service charges, and no minimum balance. It is also covered by Canada Deposit Insurance Corp. insurance through its parent company, National Bank of Canada. And it is available to advisors through FundServe, with a 0.25% trailing commission.

“High-Interest CashPerformer has proven immensely popular within the advice channel, growing to almost $2 billion in deposits,” Dillon says, adding that the product’s ease of access is a selling point.

“We see being on FundServe as a major advantage,” he says. “Advisors clearly like the idea that any cash sitting in an investor’s portfolio can easily be deployed in a competitive, CDIC-insured, no-fee environment in the same way as other fund purchases.”

Access is the key issue for most people. They want to know they can move their money around in emergencies.

ING paved the way, allowing customers to log onto its Web site and electronically send money to and from outside bank accounts. ING likens this to the direct paycheque deposit that is now so prevalent. ICICI and others have done the same, allowing customers to link up with existing institutions with few restrictions.

Some smaller players, such as Achieva, are more limited, accepting deposits by mail or electronically if clients’ regular banks list them as bill payees. Making deposits at bank machines that are part of the credit unions’ AccuLink network is another option.
IE