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How to get the maximum variable rate on your savings for balances higher than $250,000

A higher deposit qualifies you for better interest rates — but it also means higher risks.

Depositing $250,000 or more in a single GIC or savings account can help you qualify for the best interest rates and terms, but you could also pay higher penalties for withdrawing from a GIC early or lose some of your money if the bank fails.

How do these accounts work?

Competitive savings accounts and guaranteed investment certificates, or GICs, often use tiered interest rates — the higher your balance, the higher your rate. Setting aside $250,000 or more in a single account can help you qualify for the highest interest rate.

How do I compare accounts?

When choosing an account to park your savings, look at:

  • Interest rate. For deposits over $250,000, even a fraction of a percentage can add up to a big difference. For GICs this could be a variable or fixed rate.
  • Interest calculation and payment. The more often interest compounds, the more money you’ll earn. You can grow your interest exponentially if you find an account that calculates daily and pays monthly into the same account.
  • Account type. A GIC will likely provide the best interest rate, but it could also restrict your access to your savings. If you need access to your money in an emergency, a savings account is a better fit or look for a GIC that allows you to cash out early (but you will likely get a lower interest rate in this case).
  • Fees. Read the fine print to ensure that no monthly fees will be charged towards your balance.
  • Penalties. If you’re opening a GIC, check what penalties you’ll need to pay if you withdraw your money early. And if you’re opening a savings account, check if there’s a penalty for making too many withdrawals or letting your account dip below a specified minimum.

What are the pros and cons to these account types?

Pros

  • Interest earned. With an account where the maximum rate applies over $250,000, you have the opportunity to increase your wealth just for saving your investment money.
  • Flexibility. If you choose a GIC, you’ll have the flexibility to choose a term length you’re comfortable with. And with a savings account, you can access your money whenever you need to.
  • Low risk. Unlike investments in stocks, bonds or even real estate, savings accounts and GICs provide a low-risk way to grow your money.

Cons

  • Security. Any single amount over $100,000 is not insured by the Canada Deposit Insurance Corporation (CDIC).
  • Low reward. While avoiding high-risk investments keeps your money safer, it also doesn’t let your money grow at a high rate. Because your savings principle is guaranteed, your reward rate is lower. Successful investments in stocks, bonds or real estate have a higher potential for returns.

What are the risks?

Keeping over $250,000 in one account comes with risks, including:

  • Picking GIC terms that are too short or long. Choosing a shorter term means you won’t be able to take advantage of the most competitive interest rates. You’ll face penalty fines if you choose a longer term and need to withdraw your funds early unless you find a GIC that allows you to withdraw your funds early.
  • Not insured by the CDIC. Any amount over $100,000 isn’t insured by the CDIC, which means you could lose money if the bank fails.
  • Account maximums. GIC accounts often have maximum deposits, which means that you’ll need to check if it’s possible to open an account with $250,000 or more.

Bottom line

Putting $250,000 or more into a single account lets you take advantage of the highest interest rates — but it also limits which accounts you’re eligible for and could put some of your money at risk if the bank fails.

It also means that even small differences in interest rates and account terms can have a huge impact on how much you earn, so take the time to compare savings accounts and GICs before choosing.

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