What are savings accounts used for?
A savings account is a secure place to store your cash in the short to mid-term. You might be saving for a vacation, a home renovation project, or just building a rainy day fund. Unlike chequing accounts, savings accounts are not intended to be used as transactional accounts, for frequent withdrawals or daily purchases.
All of Canada's major financial institutions offer basic savings accounts (you may have received one automatically when you opened a chequing account), but these rarely offer a good rate of interest. For a better deal, seek out a high-interest savings account (HISA).
Savings accounts, unlike other investments, are not at the mercy of stock market fluctuations and you can usually access your money at any time, without penalty. For this reason, they are considered a low risk option for safe-guarding your cash.
Ratesupermarket.ca works with Canada's most trusted financial institutions to find you the best deal on savings accounts. We compare all of the best offers in one convenient place, saving you time and helping you make more money.
What are high-interest savings accounts (HISAs)?
High-interest savings accounts are savings accounts that pay out more interest.
For the last 10 years, the Bank of Canada's benchmark interest rate has remained very low. As a result, traditional savings accounts have been offering as little as 0.05% interest. This is lower than the rate of inflation and it means that after a year of "saving," your money actually has less buying power than it did before.
HISAs boast a significantly higher interest rate, enabling you to outpace inflation and earn a little extra cash on top of the amount you have contributed.
Are all savings accounts the same?
All savings accounts, even high-interest savings accounts, serve the same purpose: to look after your spare cash until you need it.
However, not all savings accounts are created equal. Here are some things to consider when looking for a new savings account:
What is the interest rate?
This is the most obvious reason to favour one savings account over another. How much interest will you earn on your cash between depositing it and withdrawing it? The higher the interest rate, the faster your savings will grow.
How is the interest calculated?
This is where things get a little more complicated. Once you see an interest rate that is attractive to you, take a minute to learn how the interest is applied.
Some of the most lucrative savings accounts offer compound interest. This means that once the interest your money has generated gets added to your balance, the next round of interest is calculated on the total amount, rather than just the initial principal deposit. In effect, your interest is earning interest. Some savings accounts may compound interest monthly, but annual compounding is more common. The more frequently your interest is compounded, the faster your balance will grow.
Is there a monthly fee?
As with chequing accounts, some savings accounts will charge you a monthly fee. These fees are often waived if you maintain a high balance, but make sure you know the rules before committing to a new account.
Does the account allow unlimited transactions?
There might be a limit on the number of times you can make a withdrawal from a savings account. The same may be true for the number of e-transfers, or bill payments you can make. The justification for this is that the bank makes money from your money. If the balance is constantly fluctuating, your cash is not a reliable or predictable source of income for them, and they cannot justify payout out a high rate of return. If you exceed threshold for free transactions, you will face additional fees at the end of the month.
Are there deposit or balance requirements?
It is rare, but some savings accounts have a minimum deposit requirement.
More common are accounts that require you to keep a minimum balance before they pay out any interest – and in many cases, accounts have a tiered interest structure based on minimum balance.
Can you access your money easily and without restriction?
Although you are not drawing on this money as frequently as if it were a chequing account, being able to access your cash quickly is still important. Before you pick a new savings account, ask about retrieving your money. Is it possible to withdraw the cash from an ATM, or do you have to transfer it to a chequing account first? This is probably not a deal breaker, but delays could prove problematic if you need the cash in a hurry.
Do you have to sign up to other products?
It is possible that you are completely happy with your chequing account and other banking products, but want to take advantage of a high-interest savings account offered by a different company. Are you able to sign up for the HISA without also opening a chequing account with them? An eye-catching interest rate is a good reason to open a new savings account, but not if it comes with unwanted baggage.
What are the advantages of a high-interest savings account over a GIC?
The primary advantage of a HISA over a Guaranteed Investment Certificate (GIC) is accessibility of your cash.
Unless you have enrolled in a cashable product, a GIC will tie up your cash for a period of time, often five years, before you get your money back. If something unexpected happens and you need to break the agreement, you will have to pay a penalty, and any accumulated interest is lost.
High-interest savings accounts can normally be accessed without penalty, making them a better choice for storing money you may need in a few months time.
What are the advantages of a high-interest savings account over a TFSA?
A HISA will probably offer a higher interest rate, making it a better option for achieving short or mid-term financial goals. However, at the end of the financial year, you will have to pay tax on any interest earned. If you are already in a high-tax bracket, this could negate any profit you have made.
The main advantage to a Tax Free Savings Account (TFSA) is that any interest you earn is tax free.
Both high-interest and tax free savings accounts are useful, and a great way to save money, but deciding which option is right for you will depend on how soon you need the cash. If you are looking for short to mid-term savings, then a high-interest account is probably better, if you want a long-term option, consider opening a TFSA instead.
Don't settle for less
A savings account is a secure, yet accessible place to keep your money. Ratesupermarket.ca shows you the best savings accounts side by side, so you can compare offers and make an informed decision. Don't settle for less, find a great savings account today.