US versus Canadian savings account returns

[accountingsucks]

I now see that Emigrand Direct is paying 4.8% on a savings account in the US. Unfortunately as a Canadian we can not deposit at Emigrant. We do have ING available to us and the rate is around 3.4% last I checked while in the US I believe ING is paying 4.5%. I'm getting 3% with my bank here in Canada and am not going to switch to ING for the extra .5%.

Why the discrepancy in rates between US and Canada?

[uncledrz]

I'll take a stab at this question, but I am not a fiancial guru and so will certainly accept other explanations from those on this board who are better versed in these matters.

As I understand it, Canada has, or is moving to, a balanced budget internally. In trade matter, because of the energy rescourses, Canada has a net positive balance of trade.

Therefore, there is a greater desire to hold Canadian dollars as they, relatively, lose less value over time than U.S. dollars, and thus the U.S. dollar accounts require a higher rate of interest to induce the funds to remain in U.S. dollars.

[AltaRed]

Actually, the reason is that ING does not have to pay more in Canada for US$ accounts. There are few options in Canada for people to hold US$ accounts and it is all about competition.

I had an argument with ING 6 months ago when I was still working in the USA. They would not let me keep my account in USA once I relocated back to Canada and the reason was...not to undercut nor compete with their Canadian affiliate.

Bottom line is that Canucks are held hostage by the Canadian system AND their affiliated companies stateside. Fortunately, I was able to keep my US brokerage account as long as I no longer did equity trades (buys) and so I went there instead.

[AltaRed]

Quote:

Originally Posted by uncledrz As I understand it, Canada has, or is moving to, a balanced budget internally.* In trade matter, because of the energy rescourses, Canada has a net positive balance of trade. Therefore, there is a greater desire to hold Canadian dollars as they, relatively, lose less value over time than U.S. dollars, and thus the U.S. dollar accounts require a higher rate of interest to induce the funds to remain in U.S. dollars.

BTW, you are correct when comparing C$ and US$. Canada has both a trade surplus and a fiscal surplus for going on 10 years now (maybe not quite that long). Canada's central bank has not had to boost interest rates as much as USA to support the C$. Having said that, Canada's inflation is starting to creep up due to strong economic performance....so Canada may well see continued increased rates (even after US Fed stops) in near future to dampen inflation.