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A savings account is a great way to save for emergencies, a big purchase, or help your money grow. We’ve evaluated savings account from perks, fees, minimum balances, accessibility to money, interest rates, and overall quality.
Neo Money has no fees and offers a competitive interest rate, which is significantly higher than most big banks offer. This account also offers free transactions, similar to a chequing account which allows customers to easily access their funds to pay bills or transfer money to friends.
EQ Bank Savings Plus comes with free eTranfers which allow you to use the account as a hybrid savings and chequing account. You can make bill payments and send eTransfers without any fees. It also offers low fee international money transfers if you are looking to transfer funds internationally
Simplii Financial is a trademark of CIBC, which means you can enjoy the extra features and low fees that online banks can offer, but you can be at peace knowing that your funds are stored with a major Canadian bank.
A savings account typically offers higher interest rates than a chequing account. The money in a savings account should be viewed as long-term or an emergency fund. Whereas in a chequing account, the money is used consistently for daily purchases.
Savings account also provide liquidity, which is the ability of a bank to get money quickly. This is especially important in the current economic climate. There are no guarantees that you will be paid, especially if you don’t have a job. A savings account can provide you with liquidity while looking for a job or covering an emergency such as a car repair or medical bill.
Also, a savings account can help you reach financial goals. Most traditional savings accounts do not offer a high interest rate. However, with a high interest savings account, you can earn higher interest, and in most cases, you can earn almost double the interest rate of your traditional savings account. These accounts may help with budgeting and wealth building.
The prime rate defined by the Canadian Government is a major driver of all interest rates for credit and savings. This rate is variable but offers stability with interest rate lock-ins on savings accounts and high-yield interest accounts. High-yield interest accounts will have interest fluctuate without notice and are based on the economic conditions of the country. If the economy is doing well, the rates will be higher.
If the account is based on a variable rate, it will be dependent on market conditions; however, if the rate is fixed, it will guarantee the same rate. Typically, a fixed-rate savings account will have a lower interest rate than a variable, but it will offer consistency.
The frequency of rate changes varies from bank to bank, with some changing their rates weekly and others monthly or even more infrequently. Savings accounts do not typically fluctuate as often as GICs or other types of deposits. The Bank of Canada sets a target interest rate (the overnight rate) that influences how much banks pay for funds.
It’s difficult to know exactly how much money you should save in a high-interest savings account. Everyone’s situation is different, and there are many factors to consider before deciding exactly how much money you should save.
Your situation – and your savings goals – will dictate just how much you should be saving in an account like this. Here are some considerations:
To get started, we suggest calculating how much money you need to save right now to meet all of your short-term goals (three years or less). Then consider how much more money you’ll need over the next few years to meet your goals.
When it comes to saving for long-term goals (10+ years), a high-interest savings account may not be best suited for this purpose. That’s because interest rates are currently low, and these accounts typically have a balance cap which means after you reach this limit, you won’t earn interests.
The money in a savings account is safe. All financial institutions are required to be insured through CDIC (Canada Deposit Insurance Corporation). The CDIC does have limits and will insure up to $100,000 per account, per person, per bank.
If you have more than $100,000 in a CDIC-member savings account, you may be able to protect the excess funds through other means. This process is more complicated and involves splitting that amount between different member institutions.
A significant risk of a savings account is inflation. On average, the bank’s interest rate is lower than the inflation rate.
There are different types of fees associated with savings accounts.
Savings accounts may require minimum balances, or banks charge a maintenance fee. These fees are not usually high but can add up quickly. Having a chequing account and a direct deposit into savings each month usually waves these fees.
Some have monthly transaction fees, meaning that you will pay a fee regardless of how much you deposit or withdraw from your account each month. Other fees occur due to specific actions on your account, such as a withdrawal or overdraft fee. You can learn more about these fees by reviewing the pricing schedule when you open the account.
You’ll also find differences between what banks charge for certain products and services. For example, some financial institutions may charge an ATM fee when you use an ATM not owned by that bank. Over time, this can add up and cause you to pay more money for something as simple as withdrawing money from your account.
Yes, savings interest is taxable. The interest received is taxed at that year’s earned income tax rate. Interest income from investments like GICs and bonds is taxable. The same goes for money held in a savings account or high-interest savings account. Some banks will deduct tax at the source from the interest paid out to you. This amount is called a non-resident tax, and it can be claimed as a credit when you file your tax return.
Income earned from investments held in an RRSP is not taxable as long as the funds stay inside the account. If you withdraw money from your RRSP, any earnings withdrawals are included in your taxable income.
However, a TFSA will not be taxed because those earnings had already been taxed when you added money to your TFSA. Contributions to a TFSA are not deductible for income tax purposes.
Grand openings of new banks usually offer a variety of promotions to bring in new customers. These are great opportunities to find low fees and higher interest rates with a cash promotion for depositing a certain amount. Choosing the best savings account boils down to the following:
