If you’re saving for a rainy day — or just a vacation — stashing your money under the bed isn’t the only way to reach your goals.
Most banks offer multiple types of savings accounts that can keep your money safe while paying interest to help you reach your goals sooner. With so many options out there, it’s important to weigh the pros and cons before choosing.
Start with a little. In most cases, you don’t need any money to open a savings account. There’s often no minimum balance requirement and you can make deposits of any size as often as you’d like.
Set up an automatic savings plan. This feature automatically transfers a small portion of your paycheque into your savings account when you get paid so that you can “pay yourself first” and develop a habit of saving.
Joint accounts. You can open savings accounts with your partner so that you can save together.
Easy access to your money. Many savings accounts offer easy access to your account with multiple bank branches, ATM cards, mobile apps and online banking platforms.
Earn interest on your savings. Financial institutions pay you interest on your savings account balance, and many accounts offer compound interest, meaning your money can earn its own money. You can also keep switching savings accounts to take advantage of attractive introductory interest rates for new accounts, though most institutions will only allow one introductory offer per customer.
Savings accounts are free to open. Most savings accounts cost nothing to open, and there are many accounts that come with no monthly fees.
No lock-in period. You’re not locked in for any period of time and you can switch savings accounts as often as you like.
Protect your chequing account from overdraft fees. If your savings account and chequing account are with the same bank, you may be able to link the two. In the event that there isn’t enough money in your chequing account to complete a transaction, funds will be transferred from your savings to avoid overdraft fees.
Your money is safe. Banks are known for their well-protected vaults, and if your financial institution goes bust, the CDIC will guarantee your savings account balance up to the value of $100,000.
Rates can change. One key disadvantage is that savings account interest rates are variable, meaning that financial institutions are free to set and change interest rates as they wish. High-interest savings account rates will stay largely in line with the movements of the prime rate set by the Bank of Canada.
Temptation to spend. Savings accounts are on-call products, meaning you can access your money whenever you want. While it’s nice to have financial freedom, a time deposit may be a smarter option if you’re tempted to dip into your savings.
Withdrawal limits. Many savings accounts come with withdrawal limits to prevent you from using up your funds. While you’re technically allowed to access your money whenever you want, every transaction above this limit will be accompanied by a penalty fee.
Inflation. If your savings account doesn’t pay a competitive interest rate, inflation could be eating up the value of your earned interest, leaving you with an account balance that’s worth less a year from now than it is in today’s dollars.
Advantages and disadvantages at a glance
With a high-interest savings account, the interest earned on your balance could add up, especially with compound interest.
On the flip side, a savings account comes with variable interest rates, which are subject to change. If the Bank of Canada decides to drop interest rates, you could be earning less interest than if you’d deposited your money into a GIC or other time deposit.
Savings accounts allow you to access your funds whenever you need it – a reassuring feature should you run into emergencies.
The ability to access your savings at any time may increase the temptation to spend it. Plus, if you go over the withdrawal limit, the fees can reduce the amount you’re saving.
No lock-in period
You’re not locked in for any period of time, which means you can switch savings accounts as often as you like.
With no lock-in period, there is potentially no incentive to commit to any minimum monthly deposits.
Compare savings accounts
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There are a number of benefits to having a savings account, including introductory interest rates, savings plans and online access. Be sure to look at the different ways you can grow your savings before applying for a product. Set-and-forget investments such as GICs can be a handy product to use alongside an on-call savings account. To learn more about finding the best savings account for you, check out our detailed savings account guide.
Frequently asked questions
It depends on what you’re planning on using the account for. Many savings accounts have low initial deposit requirements, meaning you can start saving with as little as $1. Once you start saving more money, you may want to consider working towards an emergency fund, which is typically 3-6 months worth of expenses.
Anyone. Most savings accounts are available to almost everyone, from children to adults and immigrants to lifelong residents. There are also accounts that are designed for certain people, like youth savings accounts, student savings accounts, retirement savings accounts and more.
Interest is the rate at which an investment grows, whereas the APY (annual percentage yield) reflects the amount you’ll earn after one year, taking into account the interest rate and frequency of interest payments.
As the assistant publisher of banking and investing at finder.com, Ryan Brinks melds more than a decade of experience in business news and online content into creating comprehensive and helpful comparisons of the companies you trust your money with. He loves to innovate and put money to work while keeping a careful eye on managing risk. Beyond work, Ryan's also passionate about his family and serving his community.
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