EQ Bank Savings Plus Account

- Earn 2.5% interest
- Free transactions
- Zero everyday banking fees
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Here’s how compound interest accounts work. Say you put $5,000 into a savings account for your child when she’s born, and the account has a 1.5% interest rate compounded monthly. By the time she’s old enough to go to university, she’ll have over $6,500 to put towards anything she needs – you would’ve made an extra $1,500 without even touching the account.
If the same amount was held in the account for 65 years to create a modest nest egg for retirement, and if you added $10 each week to boost your savings, you’d have over $66,000 by the time you retire. Interest alone would’ve almost doubled the amount of money you would’ve put into the account prior to retiring. And if you increase the amount you set aside each year by 3% to account for inflation… you’d have $149,000 by the time you retire! That’s over $50,000 earned in compound interest.
Compound interest is among the best ways to make your money work harder for you, helping you to reach your savings goals more quickly. As the examples showed above, compounding can increase a small amount of money today into a large balance over 10, 20 or more years.
And you don’t need to be an investor to take advantage of it — anyone who can put away money can benefit from compound interest.
To get the most out of compound interest, deposit as much as you can into your account and limit any withdrawals from it, whether for bills or fun money. The more that’s deposited into your account by the end of the month, the more interest you’ll earn.
Even if you can’t deposit extra money into your account, your balance continues to grow as your interest compounds each month.
In the context of lending, interest is the cost of borrowing money. When you take out a loan, you typically pay interest as a percentage of the principal amount at an agreed upon rate.
When it comes to savings accounts or investments, interest is the money you earn for allowing the bank, credit union or other financial institution access to your money and invest it. When you deposit your money into an interest-bearing account, you’re effectively lending money to the bank.
Pooling together its members’ money is how banks and other lenders provide loans to borrowers, among other banking activities. Technically, even though the bank invests the money its customers put into their accounts, everyone still has access to the full amounts they’ve put into their accounts (within the limits of their account agreements, of course).
The assumption is that customers won’t want to withdraw all their funds at the same time, a dreaded event known as a “bank run.” Bank runs can shut down banks and ruin people’s savings if the bank doesn’t have enough money that’s not lent out or invested elsewhere to give everyone their withdrawals.
In order to prevent bank runs and manage cash flow safely, banks sometimes put holds on deposits and withdrawals. This helps prevent too many transactions, especially high-value transactions, from hitting the bank all at once.
Many factors play into the amount of interest you ultimately receive, including:
The interest rate is often expressed as an annual percentage. The higher the interest rate you’re offered, the stronger your return.
Back to topYour provider should prominently advertise the monthly variable interest rate under the product description for the particular account you’re looking at. It’s how they entice you to do business with them, and not a competitor.
If you’re not sure where to start, read our guide on high interest savings accounts to find out how you can find the best savings account for you. Note that interest rates are often variable, meaning they can change according to the prime interest rate.
Compound interest is an incredible tool. But it’s only one element to consider when shopping for a savings account.
To get the most out of a savings account with compound interest, start saving as early as possible and avoid unnecessary withdrawals.
One easy way of finding out the interest rate on your savings account is by looking at your account details online or on your bank's mobile app, assuming your bank supports these features (most do). The interest rate charged on your savings account balance is often stated on the same page that you can view your transaction history for that account.
Alternatively, you can read the terms and conditions of you received when you signed up for your savings account or else call a bank rep. Make sure you find out all of the following details:
Interest that's paid monthly is calculated on your balance at the end of the month. If payments are made monthly, then you'll have that amount deposited into your account each month. But if you're paid yearly, then you'll get the sum of all your monthly interest payments in one large, collective payment at the end of the year.
No. In most cases, you must meet your minimum monthly deposit requirement with other funds.
Yes. Interest on investments, including interest earned on savings accounts, is considered income by the CRA. If your income is above a certain threshold, you must declare what you make to the CRA and pay income tax on it.
This is true even for children's savings accounts, although children do not often meet the minimum income threshold required to be taxed. However, they may meet the threshold if their parents transfer money to them and that money is subsequently invested. See our guide to finding the best children's savings account for more information.
To learn more about paying tax on interest earned from a savings account, click here.
Stacie Hurst is an editor at Finder, specializing in a wide range of topics including stock trading, money transfers, loans, banking products and online shopping. She has a Bachelor of Arts in Psychology and Writing, and she completed one year of law school in the United States before deciding to pursue a career in the publishing industry. When not working, Stacie can usually be found watching K-dramas or playing games with her friends and family.
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