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30 October

The Flip Side of Rate Cuts

Yesterday the US Federal Reserve did what the markets expected it to do and cut their target rate by 50 basis points (0.5%). The markets appeared to accept the news fairly well and rallied a little bit after the announcement but then fell off a little towards the close. On this side of the border the Bank of Canada cut their target rate last week by 25 basis points and in their comments they left the door open for another 25 basis point cut early in 2009. The big 5 banks in Canada have all dropped their prime rate to 4% now, only 0.25% away from the lowest prime rate I can remember this decade.

So that's all well and good, it now costs less to borrow money and that should help to stimulate some investment if the credit freeze thaws out which it looks like it could be. But what has happened to savers? This morning I took a look at the interest rate on our PC Financial Interest Plus Savings Account. When we opened that account about a year and a half ago the interest rate was over 4% if I recall correctly. Now the interest rate on that account is down to 3.05%. I wondered what other high interest savings accounts were paying so I took a quick little tour around the online banking sites that came to the top of my head. There appears to be a fairly large range of interest rates available out there for high interest savings accounts. Here is what I found:

PC Financial Interest Plus Savings Account: 2% on balances under $1000, 3.05% on balances $1000.01 and up. Plus they have a deal on right now for any new money deposited into an account before November 30 will get a 3.75% interest rate deposited into the account in December.

ING Direct Investment Savings Account: 3% with no minimum balances. They also have a deal where you can open an early Tax Free Savings Account and they will pay you double the interest between now and the end of the year which for will more than cover the cost of the taxes owed on the interest generated in the two months left before the account gets automatically converted to a real TFSA in January. ING also has some pretty good GIC rates if you are willing to lock your cash in for a specific time frame (1-5 years with rates going up as the locked in time gets longer).

HSBC Direct Savings Account
: 3% on all balances (unless you have more than a million in the account ;) ) but there is an ad on their site saying that the great rates will only last until October 31. I don't know if I believe that (since 3% isn't really a great rate compared to the competition) but maybe they will change rates over the weekend or on Monday.

ICICI Bank HISAVE Savings Account: 3.4% on all balances.

(Have I missed any of the big high interest accounts? Let me know in the comments.)

So for anyone looking to park some cash in an account that will pay more interest than a checking account for either short to medium term spending or while they wait for the markets to calm down a little bit there are options out there. I am actually a little bit surprised that the interest rates on these accounts have held up so well. In the last month the Bank of Canada has cut rates 75 basis points and the big 5 Canadian banks have cut their prime rate by the same amount (albeit reluctantly). Maybe we will see these interest rates come down a little bit in the new year or maybe their aren't enough people with enough cash in these accounts for the banks to risk the public backlash by cutting rates.

posted at 09:22:35 on 10/30/08 by 0xCC - Category: Personal Finance


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