Is 2% Really A Big Deal?

Driving to work, I heard a radio commercial from one of the big banks in Canada. They were advertising a 2% interest rate on one of their bank accounts.

"You're bored at work? You'll still be earning 2%!"

"Imagine going to the dentist and having a painful root canal! You'll still be earning 2%!"

"Got hit by a car, taken to the hospital, and put in an all body cast? You'll still be earning 2%!"

Okay, maybe those examples aren't true. However, you can throw in whatever cheesy examples you want and it'll still be a fairly accurate representation of the radio spot.

The worst part is the "fine print". At the end of the radio spot, the ad spits out (in a fast manner so you can barely catch it) that you need a minimum of $5,000 to qualify.

Gorram it!

Since most Canadians have consumer debt, does anyone actually have $5,000 cash in the bank? So really, if you sign up for their "2%" bank account, you're only going to get 1% or so.

That wasn't the only "fine print". Although, it wasn't mentioned at the end, in the radio spot, it described the rate as a temporary rate.

So how temporary? Well, up to July 31st, 2014.

Wait, that's 3 days from now! So let me get this straight, not only will you need $5,000 to qualify for the 2% rate, but the rate is only good until July 31st, 2014?

Assuming you put in $5,000 today, on August 1st, 2014, you'll be $1.10 richer! Awesome!

Is 2% interest that big of a deal?

I guess the simple answer is no.

Here's a few reasons:

  1. Inflation for June in Ontario was 3%. You'll be losing money to inflation.
  2. People's Trust has a TFSA HISA paying 3% interest*. You'll be matching inflation, and it's not an introductory or temporary rate.
  3. The Toronto Stock Exchange is up around 13% for the year so far. If you invested the $5,000 to track the index at the beginning of the year, you'd have about $5,650 minus some fees (or more with dividends and distributions).
Even putting your money in the free online banking options (with savings accounts paying 1.35% interest) would be better than this "amazing" offer.

Granted, maybe this bank has been offering this special since tax season in April and started advertising on the radio at the last minute.

In any case, it's better than nothing which is what you'd get if you leave your money in a chequing account.

But really, who has $5,000 sitting in a chequing account? People will either spend the money or already have the money in some form of savings or investment.

As the Loonie IT Guy, I definitely don't have $5,000 sitting around doing nothing.

*Personally, I don't have an account with People's Trust. However, this is an option out there if you are uncomfortable with investing.


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