Since the COVID-19 pandemic forced the Big Five to trim savings rates to near-zero, small banks offering 2% and more have seen client numbers grow
For financial institutions such as EQ Bank, offering interest rates that are 40 times higher than those attached to savings accounts at the Big Five banks is starting to pay dividends.
And the strategy is working, Poddar said. Since the COVID-19 economic shutdown forced the Big Five to trim savings rates to near-zero and injected volatility into equity markets, EQ has been signing up new clients at more than double its regular pace. This new wave of clients is the second-largest EQ has seen since opening in 2016.
If a smaller financial institution can offer two per cent interest rates, the big banks could technically do the same, Laird said. The reason they won’t is because they don’t need to. The big banks, Poddar said, also have to serve the mass market and make multiple services and products available to their clients, some of which may be less profitable, while smaller institutions can focus on only a handful of things.
Banks like Motive rely mostly on word-of-mouth to drive new accounts. “Every customer we have is a potential referral source,” Wright said. EQ even encourages it by offering between $20 and $40 for each successful referral. But there’s only so far they can get on word-of-mouth and advertising budgets that are dwarfed by the Big Five.
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