Helen Burnett-Nichols
Beth Buczynski
When it comes to financial institutions, many Canadians feel tremendous loyalty toward familiar brands.
In a September 2023 survey by Statista, 54% of respondents said they were unlikely (19%) or very unlikely (35%) to change their primary bank.
However, the banking landscape has been shifting over the past decade, with smaller, often online-only banks emerging — and offering compelling products and rates.
As uncomfortable as it might feel to think about switching, some of these smaller, lesser-known banks might be a better good fit with your financial goals — or the way you bank.
Here are a few situations where it makes sense to consider a non-traditional bank.
1. You already do most of your banking online
A growing number of Canadians carry out their banking transactions exclusively online or via mobile app. If you’re one of them, it may be time to consider a financial institution that has also ditched the brick-and-mortar locations in favour of a digital approach.
Many new banks are branchless — they don’t have a physical location you can visit. Without branches to staff and maintain, these banks often pass their cost savings on to customers in the form of lower fees and more competitive interest rates.
Nerdy Tip: If you enjoy meeting with an advisor in person, or if you need regular access to things like bank drafts, certified cheques or money orders, an online bank may not be the best fit. But if you haven’t visited a bank branch in years, and are comfortable with web chat-based support or phone assistance, switching to an online-only bank may yield lower costs and higher earnings.
2. You’re tired of paying high fees
Nearly half of Canadians are paying bank service fees of up to $15 a month, according to research by the Canadian Bankers Association.
Alternative or online banks routinely offer no-fee chequing accounts as a standard option for any customer. With no-fee accounts, you’ll not only get to keep more of your money, but are freed up to open multiple accounts that can be used for different savings or spending needs.
3. You want to earn more interest
If you’re looking to park your savings in an account that pays a decent rate of interest, lesser-known banks may be worth a look. Because they have fewer costs than traditional banks, the savings accounts and guaranteed investment certificates offered by online-only institutions often offer better rates.
Larger banks may offer higher interest rates for promotional periods but after the promotional period ends, your balance will be subject to the regular interest rate, which is often substantially lower.
How to compare and vet lesser-known banks
If you’ve decided to check out a newer Canadian bank, as yourself these questions before committing to an account or purchasing a financial product.
- Is the bank CDIC-insured? Check whether the institution is a member of the Canada Deposit Insurance Corporation (CDIC), which would ensure that eligible deposits are insured up to $100,000 per insured category. While some fintech or neobanks may not themselves be insured by the CDIC, many are owned by or affiliated with CDIC-insured banks, so deposits are eligible for coverage.
- What are the fees? With no physical branches or ATMs of their own, some online banks charge fees for withdrawing or depositing cash using ATMs. Others have partnerships with larger banks to offer customers access to certain ATMs free of charge, or offer to reimburse ATM charges as a perk. While a newer bank’s chequing accounts may not come with monthly fees, make sure that services like debit transactions or e-transfers don’t come with an extra charge.
- What products are available? Explore the products and services the bank offers to ensure the range meets your needs. Does it have chequing and savings accounts? Investment offerings? Mortgages or other types of loans? Some online banks have only a few products, but a few have a wider range.
- How do the rates compare to similar options? For savings accounts, GICs and high-interest savings products, compare the promotional and regular rates offered by smaller banks to those at your current financial institution to find an option that works with your time horizon and goals.
About the Author
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