Why Savings Account Interest Rates Matter: Manulife Bank Advantage Account Review

Do you know what interest rate you’re getting on your savings accounts? Or do you know what kind of interest rates are being offered by Canadian banks these days?

Let me guess…you have no idea.

And why would you? Interest rates on savings accounts, even savings accounts that are called “high interest” savings accounts, aren’t that high. Not compared to what you could earn by investing your money in low-cost ETFs that track the index. And certainly not if you compare them to Canada’s current inflation rate (which is 2.20% as of April 2018).

Heck, I even found this article from The Globe and Mail from 2009 about how savings account interest rates have dropped to all-time lows. Sadly, they haven’t gone up much since then. That’s 9 years of crummy interest rates! No wonder most people are apathetic about saving accounts.

But here’s the thing…even though you can’t earn 5% on your savings account like the good ol’ days, you should still care. It may not seem like it, but a small percentage point can make a big difference.

If You’re Not Earning At Least 1% on Your Savings Accounts, You Should Check Yourself

Let’s discuss really crummy interest rates first. Although most financial institutions offer interest rates above 1%, most of the big banks don’t. As a consumer, by putting your hard-earned money into one of these savings accounts, you are literally leaving money on the table. You could easily be earning more by closing that savings account and opening one somewhere else. It’s that simple.

And if you’re wondering where to put your money instead, when doing some comparisons, I found that the financial institutions that offer the highest rates of interest on savings accounts are online banks like Manulife Bank. One of the reasons online banks can do this is because they have overall lower operating costs. With fewer employees and ABMs, and no bank branches, they can afford to offer better interest rates to clients.

That’s a big reason why I prefer online banks for savings accounts to traditional banks. You just can’t beat their interest rates!

What’s the Impact of a Percentage Point?

To give you a better idea of why a small percentage point can make a big difference, here are some numbers for you to check out.

Let’s say you have $5,000 held in a savings account at one of the big banks with an annual interest rate of 0.50% that compounds daily.

If you never touch it (no withdrawals or deposits), you would earn the following interest. Here’s the formula I used (that Manulife Bank uses as well).

Daily closing balance X interest rate / 365 days

In other words…

($5,000 X 0.50%) / 365 

After 1 year – $25.06

After 2 years – $50.24

After 5 years – $126.55

After 10 years – $256.30

Yeah, not anything to get excited about, am I right?

Let’s up the annual interest rate to 1.25%, which is what Manulife Bank offers (not including it’s current promo rate for new clients which is 2.40% until Aug. 30, 2018).

After 1 year – $62.86

After 2 years – $126.51

After 5 years – $322.30

After 10 years – $665.37

You see what I’m saying now? The interest rate difference of 0.75% actually means you could be earning hundreds more.

Now, to earn thousands more, let’s say you had $20,000 in that account. At 0.50% interest, you’d earn:

After 1 year – $100.23

After 2 years – $200.96

After 5 years – $506.20

After 10 years – $1,025.20

And at 1.25% interest, you’d earn:

After 1 year – $251.44

After 2 years – $506.04

After 5 years – $1,289.20

After 10 years – $2,661.49

Feel free to try this out for yourself with this compound interest calculator.

Online Banks Offer Higher Interest Rates but Are They Safe

Even though online banks have been around for a while in Canada, this is still one of the top questions I get about them — are they safe? Yes. How safe? As safe as a brick-and-mortar bank.

For instance, Manulife Bank is a member of the Canadian Deposit Insurance Corporation (CDIC), just like all other online banks in Canada. What that means is your deposits with Manulife Bank are insured up to $100,000. Even though it is highly unlikely it or any other bank for that matter will go bankrupt, if it does, your money will be safe. For more info on this, visit CDIC.ca.

Why You Should Check Out Manulife Bank’s Advantage Account

There’s a good reason why Rob Carrick, personal finance columnist for The Globe and Mail, wrote that Manulife Bank’s Advantage Account “may be the most useful savings account in Canada.” It’s because it’s way more than just a savings account.

You see, most other savings accounts are fairly limited in functionality. Either they require you to move your money to a chequing account in order to withdraw funds, make debit purchases, or pay bills, you have to link your savings account to another bank in order to open it, or you can’t do any debit transactions whatsoever.

Manulife Bank’s Advantage Account is more of a savings account/chequing account hybrid. You can earn a high rate of interest, and still withdraw cash, make debit purchases, deposit cheques through the mobile banking app, send e-transfers, and pay bills.

Some other features and benefits include:

• You can make unlimited and free transactions when you have a minimum balance of $1,000 in your account.
• You can access over 3,700 ABMs nationwide through THE EXCHANGE® Network.
• You can call support for help 365 days a year (even on holidays).
• You can get 2.40% interest until Aug. 30, 2018.

Manulife Bank #MoneyConfessions

And to end off on a fun note, I was one of the influencers to take part in a video series with Manulife Bank entitled #MoneyConfessions. I sat down with a film crew for a good hour, talking about everything under the sun personal finance, including one of my recent money confessions.

I may be a personal finance expert, but that doesn’t mean I don’t splurge once in a while! But, and this is important, I paid cash for that splurge. I paid cash with the money I was tucking away into my high-interest savings account. And those highlights were 100% worth it!