A high-interest savings account (HISA) is a secure place to put your money and start saving for home repairs or an emergency fund. HISAs are best for storing assets that can be left untouched for a short term or intermediate period. Less frequent withdrawals can help you benefit from a higher rate of interest and reach your savings goals faster.
Generally, savings accounts are a low-risk option, with a steady interest rate and fewer restrictions than other investments. Unlike many savings vessels, the COVID-19 crisis won’t alter the balance in your account or your rate of return, as HISAs aren’t tied to the stock market. Many HISAs allow you to access your money as you like, without incurring penalties, while earning extra cash. You’ll be able to save money when you can and take it out if you need to.
Some HISAs offer extra features like low fees, free bill payments or e-transfers, and you may be able to cash in on a great promotional offer. Here are three tips for finding the best high-interest savings accounts in Canada.
1. Interest Rates
Compare savings accounts at RateSupermarket.ca to see what interest rates financial institutions, banks and credit unions are offering. While your bank could end up having the best rate, you don’t want to risk missing out on a great offer by clicking the nearest application box.
Your standard savings accounts may offer interest rates as low as 0.05%, HISA rates, however, are often more competitive. Interest rates of 2.00% or more are generally the best in the market. Additionally, experts recommend 2.00% as your target for longer-term savings to keep up with Canada’s current rate of inflation.
When you spy a rate of 2.00% or higher, make sure it’s not purely promotional. While everyone loves a deal, you’ll want to ensure your rate remains high after the bonus rate expires.
Accounts Offering an Everyday Rate of 2% Interest
|Rate||High-interest Savings Account|
|2.00%||EQ Bank Savings Plus Account|
2. Transaction Limits and Fees
Like most financial products, HISAs have terms and conditions. Sometimes accounts will have minimum balances, monthly fees, and transaction charges. Others will provide extra perks like free e-transfers, bill payments and ATM withdrawals. Look for an account that suits your spending style.
Some HISA providers will offer unlimited transactions, while others may offer limited free services per month. Various accounts will charge for each transaction. By weighing the fees, the interest rate, and your financial habits, you may find the latter option offers the greatest reward. It all depends on how you plan on using the account.
Additionally, financial institutions may waive some of the fees if you maintain a specific balance within your HISA. Carefully review the terms to understand the full offering.
Lastly, take advantage of promotions if the overall account details remain strong after the bonus period. In current economic climates, you may find this option gives you more flexibility than other investments. For example, if you were to lock your money in a guaranteed investment certificate, you may incur penalties if you need to access your funds early. With a HISA, you would have the freedom to withdraw your money without restrictions, while earning a high-interest rate.
Pros and Cons of a High-Interest Savings Account
While saving money is always positive, each savings product will have its advantages and disadvantages.
Pros to using a HISA:
- High-interest rates: HISAs traditionally have higher interest rates than standard personal savings accounts.
- Accessible: Your funds aren’t locked in, and you can access them as you like. Mind you, although there aren’t penalties for taking out money, there may be account fees.
- Protected: If your financial institution has deposit insurance from the Canada Deposit Insurance Corporation (CDIC) or the province or territory in which you live, then your funds may be insured up to $100,000.
- Guaranteed savings: The balance in your account won’t fluctuate with the stock market, so your funds are secured.
Cons to using a HISA:
- Interest is taxable: The interest you earn on your HISA is considered income and is taxed at the rate of your income tax bracket. Depending on the tax bracket you fall into, you may owe a good portion of your interest income back to the government.
- Lower returns: The return on your funds is typically greater on products with higher investment risk. Earning less interest is the price you pay for financial security.