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.
A savings account typically offers higher interest rates than a chequing account. The money in a savings account, while liquid, should be viewed as long-term or an emergency fund. Whereas in a chequing account, the money is used consistently for daily purchases. Savings accounts may help with budgeting and wealth building.
The prime rate defined by the Canadian Government is a major driver to 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. When signing up for a savings account, it is important to check the interest rate, if variable 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 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. A significant risk of a savings account is inflation. On average, the bank’s interest rate is lower than the inflation rate.
Savings accounts may require minimum balances, or they charge a maintenance fee. These fees are not usually high but are monthly and can add up quickly. Having a chequing account and a direct deposit into savings each month usually waves these fees. When shopping for a savings account, understand the underlying fees. The best savings options out there have minimal fees and high-interest yield rates.
Yes, savings interest is taxable. The interest received is taxed at the earned income tax rate for that year. Also, if a cash promotion is received, this will be included in the tax document the bank sends you.
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: