Motusbank Review:Online bank with Mortgages, High Interest Savings Accounts and Personal Loans.
In our last review, we introduced you to a unique concept you may not have heard about before: the online-only bank. These types of financial institutions forgo maintaining physical bank branches and instead opt to exist solely in the digital sphere. Digital banks choose this route for a variety of reasons-from changing consumer demand, to ease of operations, to lower overhead costs-but the end result is always a convenient and valuable service for banking customers who don't need access to in-person banking services.
In the past, banking customers had to physical visit a bank branch in order to do business. Whether the customer was looking to apply for a loan to buy a car, a mortgage to buy a home, or simply deposit a cheque, it required the customer to actually make a trip down to their local branch. ATMs, to some extent, augmented this paradigm, cutting out the need for an actual bank teller to help the customer make a deposit or withdrawal. But ATMs, of course, are no substitute for an actual bank, as customers still can't apply for a loan or take out a mortgage at an ATM.
Rather, it wasn't until relatively recently that banks began to catch on to the digital trend and realize consumers' demand for a more convenient way to bank. Recognizing that many modern consumers-young people in particular-are not worried about (and indeed likely prefer) doing business electronically, banks began offering digital financial services.
In many cases, this simply involves a bank providing its customers with an online banking platform that allows them to do things like check their balances, transfer funds, configure automatic withdrawals, and set up automatic bill payments, while still maintaining a physical presence to facilitate the bank's more involved businesses such as lending. But some banks have gone a step further with their online offerings by providing their customers with the opportunity to open and close accounts, apply for credit, loans, and mortgages, and transfer money internationally, all from the comfort of their home.
Sticking with this trend for the moment, today we're going to take a look at another online-only bank, Motusbank. So, keep reading to learn all about what Motusbank has to offer.
Motusbank is the latest in a series of online-only banks seeking to serve the Canadian market. Motusbank is a division of Meridian Credit Union, which we reviewed earlier and you can find here. As we've reported, Meridian is the largest credit union in Ontario, serving more than 350,000 members and managing over $21 billion in assets. Meridian thus leveraged its impressive size and substantial experience in the financial industry to create an online bank that is quite in tune with current banking trends and modern consumers' demands.
Unlike some other online-only banks, which offer only a limited array of financial services, Motusbank is closer to a full-service bank. Although the list of services that Motusbank offers is not comprehensive, it provides all the key services that most banking customers need. The only caveat to the full-service moniker that we would note is that Motusbank does not appear to serve business customers at this time. Motusbank, instead, focuses its online-only efforts on serving personal customers.
Finally, Motusbank is a member of the Canadian Deposit Insurance Corporation. The CDIC, as we've explained in the past, is federal corporation charted by Parliament in 1967 that insures funds deposited in chequing accounts, savings accounts, and Guaranteed Investment Certificates at member institutions. The CDIC insures accounts up to $100,000, meaning Motusbank customers can rest assured that the funds they entrust Motusbank to hold are safe.
Personal financial services
Motusbank is designed with the everyday consumer in mind. While Motusbank does not offer a comprehensive suite of banking services, it still covers the basics very well. In this respect, Motusbank offers chequing and savings accounts, mortgages, and limited investment services. For many banking customers, especially younger customers who don't need access to a full range of investment and wealth management tools such as stocks, bonds, mutual funds, and more intricate financial products, Motusbank provides everything one could need manage money, pay bills, and save for retirement all in a convenient online package that is accessible from anywhere with an internet connection.
Motusbank Personal chequing accounts
We've covered a few different financial institutions that offer a variety of different chequing accounts, all of which seem to carry varying monthly fees, transaction limits, minimum account balances, and overall functionality. Motusbank, on the other hand, offers just one chequing account: the unlimited, no-fee chequing account.
As its name suggests, Motusbank's chequing account does away with limits and instead provides customers free reign over their money. With Motusbank's chequing account, customers receive unlimited Interac e-Transfer and unlimited debit card transactions, online bill payments, and cash withdrawals. And the $0 monthly fee is not contingent on maintaining a minimum account balance, meaning all Canadians can take advantage of the features of Motusbank's chequing account regardless of their financial circumstances. Motusbank customers also receive access to over 3,700 no-fee ATMs both in Canada and around the world through the EXCHANGE, Accel, and Cirrus networks, making Motusbank part of the largest network of no-fee ATMs in the world.
And they don't stop there. The Motusbank chequing account comes with additional features, including a .5% interest rate on all funds deposited in the account, 25 free cheques, and access to Motusbank's exciting Price Drop feature, which we'll cover in more detail a bit later.
Motusbank Personal savings accounts
Motusbank's savings accounts offer some equally exciting features. With three different accounts on offer, Motusbank has a savings account for any customer whether they're looking to save for retirement, to make a large purchase, or simply to build a rainy day fund. But regardless of account type, all Motusbank savings accounts feature no monthly fees, no minimum account balances, and unlimited transactions.
- Motusbank High-interest savings account
The High-interest savings account is Motusbank's savings account designed to help customers save for large purchases, develop an emergency fund, or simply put away a little money each month.
This account features a 1.75% interest rate, which is calculated based on the account's closing balance each day and added to the account's balance at the end of each month. While this means interest is compounded only 12 times per year instead of 365, this is fairly standard industry practice. Motusbank's higher-than-average interest rate, moreover, helps to offset the effects of less-frequent compounding.
Additionally, Motusbank allows customers unlimited transfers between Motusbank accounts and unlimited Interac Direct Payment purchases, all without charging a monthly account fee or transaction fees.
- Motusbank TFSA
TFSA stands for Tax-Free Savings Account. The government introduced TFSAs in 2009 to encourage Canadians to save more. These accounts are registered investment tools that allow customers to grow their money tax-free. Because contributions to TFSAs are not tax-deductible, they provide no immediate tax benefit. But in return for paying tax up front, you'll pay no tax on either the interest earned or any amount that you withdraw from the account. In this respect, the TFSA resembles the Roth IRA that is used extensively for retirement planning in the United States.
TFSAs operate similarly to traditional savings accounts, but they differ in several key respects. The biggest difference is the government has placed limits on the amount that a customer can deposit into a TFSA in a single year. For 2020, that limit is $6,000. And if a depositor goes over the limit, even by accident, the government charges a 1% penalty each month on the amount in excess of $6,000. So it's important for depositors to keep track of exactly how much they contribute each year.
But don't let this scare you off. TFSAs are extraordinarily flexible accounts. Unlike many other retirement savings products, TFSAs allow customers to withdraw their money at any time without penalty. Additionally, any amount you withdraw one year is added to the next year's contribution limit. Furthermore, unused portions of the contribution limit roll over from year to year. For example, if you deposit only $3,000 into your TFSA this year, you'd be able to make up for it the following year by depositing $9,000.
Motusbank currently pays 1.75% interest on all funds deposited in their TFSAs.
- Motusbank RRSP
RRSP stands for registered retirement savings plan. Created by the government in 1957, the RRSP is a tax-advantaged account intended to incentivize Canadians to save money for retirement. The annual contribution limit for 2020 is $27,230. The RRSP is a tax-deferred account, meaning depositors deduct the amount of their contribution from the annual income and instead pay tax on the money when it's withdrawn. This account is similar to the United States' 401(k) in these respects.
Take a Canadian who earns $100,000 per year and contributes the maximum $27,230. Without accounting for any other deductions, that person would owe tax only on $72,770. Additionally, if you don't max out your contribution limit one year, you can make up for it the next, similarly to how unused contributions to TSFAs roll over from year to year. But it's important to note that while contribution limits roll over, unused tax deductions do not. RRSPs likewise carry a 1% penalty each month for any amount over the annual contribution limit, although the CRA does provide a $2,000 cushion before beginning to collect the fee.
The law allows Canadians to contribute to their RRSPs until December 31 of the year in which they turn 71. After this time, the RRSP must be collapsed and the owner must begin to receive payouts. But because RRSPs are designed to help people save for retirement, they strongly disincentivize early withdrawals. For this reason, if you take an early withdrawal, you must pay tax not only on the amount you withdraw, but you must also pay tax on all the compounded interest your account has earned until that point, too. This can result in a dramatic loss of earnings.
RRSPs are an outstanding financial tool and should be a central part of any comprehensive retirement plan. Their tax-deferred status allow Canadians to reducing their taxable income during their prime working years-the years in which their marginal tax rate is likely the highest-and instead not pay tax on the money until they are retired and no longer working, placing that person in a lower tax bracket and therefore enjoying a lower marginal rate.
Motusbank currently pays 1.75% interest on all funds deposited in their RRSPs.
Motusbank's options for personal lending are a bit more limited than those of other financial institutions. But Motusbank still offers both mortgages and home equity lines of credit, allowing its customers to purchase their dream home or turn their current home into the one they've always desired.
- Motusbank Mortgages
Motusbank offers both fixed-rate and variable-rate mortgages. Fixed rate means you'll pay the same interest rate over the entire life of the loan. This option is great for borrowers who like predictability and don't wish to take the risk of the prime interest rate fluctuating higher than their agreed rate. Variable-rate mortgages, on the other hand, mean the interest rate the borrower pays changes as the prime market rate changes. These loans are riskier, but they also provide the borrower with the opportunity to benefit from a drop in the prime mortgage rate.
Motusbank also offers both open and closed mortgages. Open mortgages allows the borrower to pay off the entire balance at any time without penalty. In exchange, though, the borrower often pays a higher interest rate. Closed mortgages, by contrast, allows the borrow to pre-pay only a certain limit of the total loan at any given time. Banks often prefer closed mortgages because they ensure the bank will receive a steady income stream in the form of interest payments for a guaranteed amount of time. Closed mortgages, therefore, carry stiff pre-payment penalties. But in exchange, the bank typically offers a lower overall interest rate.
Motusbank currently offers 6-month to 5-year mortgage terms. Interest rates vary from a low of 2.55% on a 5-year, closed, variable rate mortgage to a high of 6% on a 1-year open, fixed mortgage. By contrast, Motusbank's 5-year open, variable rate mortgage carries a rate of 4.45%. And its 5-year closed, fixed mortgage comes in at 2.89%.
Additional features include a first-time homebuyer incentive, the ability to skip one payment per year, flexible payment schedules, and a 20/20 prepayment privilege, which allows borrowers to either pay up to 20% of their principal balance per year or increase their monthly payment by 20% per year without penalty.
- Motusbank Home equity lines of credit
Motusbank offers home equity lines of credit, which allow borrowers to use the inherent value of their home as collateral for a loan, the proceeds of which will be used to further improve the home. Motusbank's current interest rate on its home equity lines of credit is 2.95%.
Motusbank does not offer a full suite of wealth management products. Its investment options, rather, are limited to Guaranteed Income Certificates, or GICs.
GICs are ultra-safe investment vehicles that somewhat resemble savings accounts. In exchange for agreeing to not withdraw the funds deposited in the account for a set period of time, the bank pays a higher-than-normal interest rate. Of course, because GICs are so safe, the interest rate isn't high-on average around 2.25% at Motusbank. But GICs still useful vehicles to grow money that would otherwise be sitting around not collecting any interest.
Motusbank allows its customers to open a GIC with as little as $100, and it offers GICs in terms ranging from 1 to 5 years. Motusbank also offers TSFA and RRSP GICs, which enjoy the same tax-advantaged treatment as those types of savings accounts. Motusbank also offers Escalator GICs, which feature an interest rate that increases the longer the GIC is open.
The Motusbank Price Drop feature
We mentioned Motusbank's Price Drop feature earlier and promised to come back to it. With Price Drop, customers simply upload a snapshot of any purchase receipt and Motusbank searches around for a better deal. If and when they find one, they provide the customer with proof of the better deal, which the customer then presents to the retailer who refunds the difference. And for online purchases, Motusbank handles the second step, too. Price Drop doesn't apply to all purchases, such as gas, groceries, and entertainment. But it does apply to dozens of leading retailers including tech, fashion, and outdoor brands.
How does Motusbank stack up to the competition?
Motusbank's Price Drop feature is what sets it apart from its competition. This unique feature helps Motusbank customers shop with the peace of mind knowing they'll always get the best deal on nearly anything they buy. Additionally, Motusbank provides access to the largest networks of national and international ATMs we've seen so far. So while their high-yield savings account doesn't pay quite as much as others that we've seen, these two features should nevertheless make it a strong contender for anyone's banking business.
Motusbank is an online bank that comes close to being a full-service bank for Canadians who don't need access to a full suite of wealth management tools. Their chequing, savings, and retirement accounts, along with their extensive GIC offerings and mortgage lending practice make it close to a one-stop shop for personal banking without ever needing to leave your home. As always, we encourage you to check them out for yourself before deciding whether to make the switch.