Savings Accounts Guide

Our handy savings accounts guide will help you find all you need to know about getting the most out of your Canadian savings accounts. Read on below and don't forget to compare savings accounts to find the highest interest rates in your provice.

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What are the most important factors to consider when selecting a savings account?

  • Rate - Possibly the most important factor is the interest that you can earn on your savings. These days, some of the highest rates offered on savings accounts are through virtual banks (i.e. ING Direct, PC Financial, Ally, etc.). They can afford to pay a bit more in interest because they don't have the overhead costs that come along with bricks and mortar.
  • Fees - Some savings accounts will charge a monthly fee and/or a transaction fee. Make sure you're aware of the fees associated with the account. There are several good savings account options available for no fees.
  • Amount - Ask yourself how much money you have to put aside in a savings account, as some accounts require a minimum balance to qualify for the advertised interest rate.
  • Service - How important is it for you to have access to your account through a branch/teller? How long will it take the bank to process your transactions? There are loads of options out there, so if you're not happy with one provider's service, check out another.
  • Features - Some banks offer special sign up bonuses like a gift certificate or a higher interest rate for your first few months. If you're considering using a new provider, don't be afraid to ask about incentives to switch. Also, what is there online banking system like? Sure, most banks offer online banking these days, but some systems are more user friendly and helpful than others. There are free tools available at places like Mint.com that offer personal financing applications to help you track and manage your budgets and reach your savings goals faster.
  • Reputation and safety - Check out company/product reviews online before signing up to anything. Also make sure that the financial institution is covered by the CDIC. The Canada Deposit Insurance Corporation will help to protect your money if the bank goes under. For more information about CDIC protection, click here.

What are the benefits of a savings account?

People choose to put their money into a savings account for a number of reasons:

  • Interest - It's important to save and have money set aside for an emergency. By using a savings account you can earn interest on your money while it's not being used.
  • Flexibility - You can gain access to your money at any time, since it's not locked away or tied up for a set term.
  • Safety - Most Canadian financial institutions are backed by the CDIC, so even if the bank goes bust, your money is protected (up to $100,000 at each FI). This makes a savings account a much better alternative than an old shoebox.
  • No Risk - Some people are put off by investing because they don't want to risk losing their money. Investments in stocks or mutual funds can have much higher returns, but they also carry more risk. With a savings account or a GIC you can rest assured your principal is safe.

What type of information do I need to open a savings account?

In order to open an account you typically need 2 pieces of Government issued ID and a Canadian Social Insurance Number if the account is to be registered (i.e. TFSA, RRSP, RESP etc.). In some cases the financial institution might check your credit history. Certain accounts may also stipulate a minimum age requirement.

What fees should I expect to pay?

Some might say that no fees are becoming the norm for savings accounts these days with the likes of no-frills virtual banks like ING Direct, PC Financial and Ally. A lot of the big banks offer online savings accounts for no charge as well. In all cases make sure you read the fine print, it may say no fees - which means no monthly fee, but then they may charge $5 for every transaction!

Some of the more common fees that you should check are:

  • Monthly fee - these fees are becoming less and less common as more accounts are offered online.
  • Assisted transactions - deposits and withdrawals done in branch or through telephone banking.
  • Electronic transactions - anything done online like money transfers between accounts or ATM transactions.
  • Interac transactions - anytime you use an ATM that isn't for your own bank, or when you make a purchase at a store on your bank card.
  • Email money transfers - this is becoming a much more popular way to transfer money to friends/family etc.
  • International transactions - any transaction made out of the country.
  • Account history inquiry - if you need to access some information that isn't available online you may need to pay for it.

What are the different types of savings accounts?

When looking for a savings account, there is no short list of options:

  • Savings Account - a.k.a the plain jane account. You can put aside extra money, earn a bit of interest and have access to your money at any time.
  • High interest savings account - you can typically earn a higher rate than with a traditional savings account. This type of an account my require you to maintain a minimum balance or limit the number of free transactions you can make. However, the lines between a normal savings account and a high interest savings account are becoming blurred. Some providers are starting to offer the higher interest rate with the same limitless restrictions as a general savings account.
  • Tax Free Savings Account - this is a singly registered savings vehicle offering tax free investment income. That's right; you aren't taxed on the money you earn in this account! You can contribute up to $5,000 per calendar year in a TFSA, carry forward any unused contribution room and even re-contribute your withdrawals the following year. TFSA come in many shapes and sizes, including savings accounts, GICs, stocks, bonds and mutual funds. For more information about TFSAs, visit our TFSA Guide.
  • Registered Retirement Savings Plan - designed to better prepare Canadians for retirement by offering income tax deductions on money invested in an RRSP. Contributions to an RRSP are deducted from your income for tax purposes in the year that you contribute. When you withdraw from your RRSP this money is added to your income and taxed at current rates.
  • Registered Educations Savings Plan - if you're saving for your child's education, an RESP can be a more effective tool than just a regular savings account. The government also offers incentive programs such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), which in more words than less is FREE MONEY! For more information about RESPs, visit our RESP Guide.
  • Youth savings account - several financial institutions offer savings accounts for children or students. These tend to have little or no fees and sometimes offer sign up bonuses. ING Direct's website for kids, www.orangekids.ca, does a great job of teaching simple money management techniques to children (if only we could all be riding in a space ship as we navigate our personal finances).

Which savings account is best for me?

Selecting the right account depends on a number of factors, including how much money you can deposit into the account, how long you can go without withdrawing from the account and what your overall financial goals are. Not needing your money until retirement in 30 years? There is likely a better option than a regular savings account, allowing your money to work better for you.

Typically a savings account is used as a safer alternative to keeping your money under your mattress. A t is a great option if you still want everyday access to the funds. Keep in mind that if you don't have much to deposit and you often dip into the account, the interest you can earn is minimal.

If you're looking for a more tailored plan and have a savings goal in mind (i.e. saving for a down payment on a home, preparing for retirement or even your next trip south) speak with a financial advisor or your bank manager about the best option for you, they may have many investment vehicles that can get you to where you need to be faster.

How can I make sure I'm saving the most?

First things first, make sure you're getting the highest interest rate available. Don't be afraid to switch lenders to get a better rate. Also avoid making withdrawals from your account. The longer you can keep your money in the account without touching it the quicker you can build up interest and compound interest on your savings. Take the thinking out of savings and set up a regular, automatic transfer to your savings account; after all it's easier to put $25 each week away than $1,300 each year!

For more tips how to get the most from your savings, check out our Savings Account Top Tips.

Is my savings account protected?

The Canada Deposit Insurance Corporation (CDIC) was created by the federal government in 1967 to protect your deposits at member institutions. CDIC will protect your savings up to $100,000 in the even that the institution goes belly up!You are not required to sign up for this insurance or to pay for it. It is automatic on all eligible deposits in Canadian dollars at member institutions. Eligible deposits include: savings accounts and chequing accounts; GICs or other term deposits with an original term to maturity of 5 years or less; money orders, certified cheques, travellers' cheques and bank drafts issued by CDIC members; and, accounts that hold realty taxes on mortgaged properties.

Products that are NOT covered include: mutual funds and stocks; GICs and other term deposits with a date to maturity of more than 5 years; bonds; Treasury bills; and, all products in U.S. dollars or other foreign currency.

The CDIC works toward keeping Canada's financial system strong. For a list of CDIC members visit: http://www.cdic.ca/members.html.

To see if all of your savings is insured, use the CDIC Deposit Insurance Calculator.

How is interest calculated on my savings?

Typically financial institutions will calculate interest based on your daily account balance and pay it directly into your account at month end. The following month you will earn interest on your initial deposit PLUS interest on the money that the bank has deposited. Interest on top of interest is known as "compound interest" and, over time, it's what will make your savings grow.

Next month you will earn interest on the money you put into your account plus the interest money that the bank has deposited. Interest on top of interest is known as "compound interest" and, over time, it’s what will make your savings grow.

You can also use our handy savings calculator to find out how much your money can grow.

Should I have my savings and chequing account with the same bank?

This comes down to personal preference, but the best answer is that you should go with the bank/financial institution that will help you to make the most money, regardless of where your chequing account is.

Many people prefer to keep all of their accounts with the same bank only because they want to see all of their money in one statement. But given the number of great money management tools now available, you can sign up for the best offers regardless of the provider and still see all of your accounts in one place.

MINT.com offers a free online money management and budgeting tool. After your set up (and the set up is super easy) you can view all of your accounts in one place and play around with your personal budget and saving goals. So if you have a RBC chequing account, a savings account with PC Financial and a GIC with ING Direct you can view all of your accounts in one place with Mint.com.

How many savings accounts should I have?

There are a few reasons why you might choose to have more than one savings account:

  1. The accounts have no fees so you're using each account for a different savings goal. You might have a savings account set aside for rebuilding your kitchen and another for purchasing a car.
  2. You might have different accounts set up in trust for your children.
  3. You prefer to multi bank - you don't want to keep all of your savings with one company.

How you choose to manage your savings really depends on your own personal preferences and goals. Just make sure that no matter where your money is being saved that you're making the highest interest and paying the lowest fees possible.

When should I open my first savings account?

You are never too young to start saving. There are a number of great savings accounts available for children as well as accounts specifically designed for students.

But remember, if the money is going into a child's savings account for educational purposes, it might be best to use an RESP instead. Speak to an RESP expert for more details.

How do I find the best rate on a savings account?

Make sure you compare the market before you sign up for a savings account. And don't just look at the account options offered by your existing bank, check what other banks, credit unions and trusts are offering.

Who regulates the banking industry?

The Office of the Superintendent of Financial Institutions (OSFI) reports to the Minister of Finance and regulates all banks operating in Canada. They also regulate all federally incorporated or registered trust and loan companies, insurance companies, cooperative credit associations, fraternal benefit societies and pension plans.



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