As more Canadians embrace online banking, a new breed of financial service providers is emerging. Zag Bank is one such provider that is making waves across the online banking industry.
While Canada’s largest banks have embraced technology, Zag has made the entire banking experience digital. As an online-only bank, Zag is offering consumers greater cost savings than ever before. Below, we review what Zag is all about and how it differs from some of the leading competitors in the online banking industry.
Zag Enters Online-Only Market
Zag emerged as a competitive player in the online banking industry by offering incredible interest rates that very few can match. The bank offered an initial interest rate of 2.5% before adjusting their “long-term rate” to 1.65%. That’s still considerably higher than the leading financial institutions, which offer practically nothing from an interest rate perspective. It remains to be seen whether Zag can maintain its high rate payouts or whether it’ll be forced to consolidate at a much lower rate to keep its finances intact. For the time being, however, a Zag chequing account is a great opportunity to speed up savings.
Zag Bank has the backing of the Desjardins Group, Canada’s largest cooperative financial institution. This means it is highly regulated and insured by the Canadian Deposit Insurance Corporation (CDIC). These features alone should allay any fears consumers have about working with a branchless and “faceless” financial institution.
Advantages of Working with Zag
As an online- only bank, Zag offers many of the same benefits as its competitors. It is convenient, easy to use and more cost effective than its brick and mortar rivals. This makes it an attractive option for consumers who are in the market for an entirely digital experience and have little use for in-branch banking services.
Zag offers several no-fee services, including:
- account opening and closing
- mobile and online banking
- online statements
- past statements
- SnapCheque and mail deposits
- transfers between Zag accounts and to/from another Canadian bank account
- pre-authorized transfers to a Zag account
- automatic alerts
Zag also offers a Tax-Free Savings Account that pays monthly interest. The actual interest rate is calculated daily and paid out on the last business day of the month.
The bank offers an RRSP savings account with the same interest benefits, allowing customers to maximize their savings towards retirement.
The 1.65% interest rate mentioned earlier applies to the Zag Savings Account, the Tax-Free Savings Account and to the RRSP account. So, if you open all three, you benefit from the same interest rates on all.
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As a relatively new online service provider, Zag naturally has a few disadvantages relative to its more accomplished peers. The biggest drawbacks of Working with Zag include:
- no ability to write cheques
- no ATM withdrawal capability
- no debit card or credit card options
When Zag says it is entirely digital, it really means it. Though it offers unlimited transfers, using your Zag account to pay for goods and services proves more difficult than conventional banking. Clearly, the bank still has a lot of work to do before it is considered a comprehensive financial service provider. A quick visit to its website, zagbank.ca, also reveals a general lack of features that may leave consumers wanting more.
Against this backdrop, it’s probably helpful not to treat Zag like a conventional bank account. However, the combination of no-fee banking and high interest payments make Zag ideal for locking away money over the long haul. If your primary goal is to boost savings or plan for retirement, Zag is an ideal option. The choice between a Savings Account, Tax-Free Savings Account and an RRSP account makes it even easier to use Zag as your primary savings vehicle. To explore the difference between a TFSA and RRSP account, click here. If you’re looking for a user-friendly way to sock money in an RRSP or TFSA, check out: The Complete Guide to Canada’s Robo Advisors.
Zag has a lot of growing to do if it intends to be a serious competitor in the online banking industry. However, there’s little reason to believe it won’t get the backing it needs to expand its operations. Desjardins is the world’s sixth-largest financial coop, giving it plenty of resources to support its online banking project. There’s already been talk of a debit card being available soon.
If you’re interested in comparing Zag with some of the other leading online-only banks, check out: The Complete Guide to Canada’s Best Online Banks. We’ve done a complete write-up of some of the biggest and brightest online banks Canada has to offer.