Today’s leading savings accounts offer competitive interest rates, minimal fees, accessibility and protection to keep just about any balance safe and growing. We rolled up our sleeves to review and rate different savings accounts to help you compare what’s out there.
A savings account is a bank account where you can safely store your money. It earns interest and is insured up to $100,000 by the Canada Deposit Insurance Corporation (CDIC) – which means you’ll get your money back in the rare event your financial institution goes under. Savings accounts are more restrictive than chequing accounts. You typically don’t get a bank card or cheques and you may have to pay every time you make a withdrawal.
Do I need a savings account?
If you answer yes to any of these three questions, then it’s time to get a savings account:
Are you saving up for a big purchase? If you’ve got your eyes set on an emergency fund, vacation fund or any other big purchase, then a savings account is for you. You’ll earn interest on your deposits, which means you’ll reach your savings goals even faster.
Do you want your money to be secured against theft or damage? Keeping money at home usually isn’t ideal because it can easily get lost or stolen. Deposits are insured up to $100,000, so you never have to worry about losing your money if your bank goes under.
Will you be tempted to spend your savings if you keep it in a chequing account? When you keep your money in a savings account, you’re less likely to spend it because it’s out of sight, out of mind. The distance between your saving and spending money makes it easier to reach your goals. Plus, you’ll earn more interest than you would with a chequing account.
For savings accounts, the interest rate is probably the most important factor in growing the money you’ve stashed away, and it’s usually expressed as a yearly rate called the annual percentage yield (APY). While many banks and credit unions pay an interest rate somewhere around 0.10%, there are several digital banking providers and other providers that pay around 2.00% or more. On a $5,000 balance, that’s a difference of $95 each year.
Also, keep in mind that if the interest rate you earn is less than the rate of inflation, your savings are actually declining in purchasing power. Over the past decade, inflation has fluctuated from a low of 0.93% in 2013 to a high of 2.89% in 2011.
The primary cost of a savings account is often the monthly fee – if the account has one. Many financial institutions now offer free savings accounts, while others are willing to waive the monthly fee if you maintain at least a minimum balance. Be mindful of any monthly fees because they can quickly and easily wipe out the benefits of interest earned. For example, even with 2.00% interest, you’d need to keep at least $3,000 in your account just to break even on a mere $5 monthly fee.
The rate of interest you earn on your savings is set by your bank, though interest rates generally fluctuate with the broader financial market and can be influenced by the rates set by the Bank of Canada. Interest rates vary by bank and the type of savings account you choose.
Savings accounts typically accrue daily or monthly compound interest. With daily compound interest, your bank calculates interest on your balance each day using a specified rate. In effect, you end up earning interest on the interest you’ve already earned. Your bank then pays out the compounded interest monthly as a credit to your account.
Your money doesn’t sit in a savings account untouched. When you open an account, you give your bank access to lend your money out to others.
Banks reward you for that access with interest, even if those rates are slightly lower than the rate they charge borrowers. It’s how they stay in business.
And if the bank loses money on that loan, it doesn’t affect your account balance. Furthermore, the vast majority of banks, financial institutions and credit unions are insured by the CDIC, so even if they go out of business, you’ll get up to $100,000 back.
How do I compare savings accounts?
High or competitive interest rates.
Your interest rate is your reward for allowing your bank to lend out your money. Make your money work hard with the highest interest rate you’re eligible for.
Low or no fees.
Most banks waive monthly fees on savings account as long as you maintain a minimum balance. If you’re paying a monthly fee with your account, it may be time to explore your options.
Easy to access your money.
Accessibility depends on your preferences and personal savings goals. A basic savings account allows you to take out or move money nearly instantly, while you’ll pay a penalty to withdraw a money from an investment account (such as a GIC) that hasn’t yet matured.
Rewards for consistent savings.
If you find your savings balance building up but at a less-than-average rate, it could be time to switch to a high-yield or other account.
How you’ll apply for a savings account depends on the bank or financial institutions you’re interested in. Generally, you’ll follow a standard series of steps like this:
Go to the financial institution’s official website to start the application process.
Enter in your personal information, including your full name, contact information, Social Insurance Number and date of birth, and supply a copy of your government-issued ID like your driver’s license or passport.
Agree to the terms and conditions.
Answer a few short questions to verify your identity.
The amount of money you accumulate in your savings account will vary depending on your goals. Here are a few popular reasons for saving money and how much you might want to keep in your savings account.
Vacation. You can avoid going into debt by saving up for a vacation ahead of time.
Emergencies. Many financial experts recommend saving up to six months’ worth of regular living expenses in case you get sick or injured, lose your job, have a family crisis or experience a natural disaster.
Retirement. Setting aside some of your earnings now is the first step to enjoying life in retirement later. After you’re in the habit and have some money to work with, consider delving deeper into retirement planning.
Major purchases. If you’ve got your eye on a new TV, a new car, new home furnishings or even a new home, you can set the estimated cost or down payment as your savings goal.
Beyond the variations of savings accounts available on the market, you have more complex options that can offer higher returns if you meet specified conditions.
Locked in for a specified amount of time, a GIC can help you earn more interest in a shorter period of time. But your money won’t be accessible until the GIC matures – unless you’re willing to pay a fee.
After you’ve narrowed down the savings account that’s right for your needs and budget, get the most out of it with our easy tips.
Keep transactions to a minimum. You may only receive a set number of free transaction per month. Avoid paying additional fees by withdrawing constantly.
Set up automatic deposits. Many institutions allow you to make automatic deposits from other accounts, paycheques and more. Choose an amount that works for your finances, and adjust it as your budget and finances change.
Consider other accounts. Basic savings accounts are a solid start to building a nest egg. But once you’ve got some money put aside, other options might better help you organize your money and reach your goals, like GICs.
Keep an eye on interest and fees. Interest rates and fees change over time, which makes monitoring your account a must.
Consider adding family to your account. Maximize your savings by adding a spouse, child or other family member to your account.
Savings accounts are one of many tools you can leverage to reach your financial goals. They include everyday savings accounts offering low fixed interest (such as the ones offered by popular banks) to high-interest accounts with no additional fees (like the ones offered by many digital banking providers). For each, the earlier you start saving, the more time your money has to grow.
Each type of savings account is designed to serve a different financial need. And with so many options at your disposal, weigh the benefits and drawbacks of each option to find the best fit for you. If you know what features you’re looking for, check out our guide to the best savings accounts.
Shirley Liu is Finder's global program manager. She was previously the publisher for banking and investments and has also written comparisons for energy, money transfers, Uber Eats and many other topics. Shirley has a Master of Commerce and a Bachelor of Media, Journalism and Communications from the University of New South Wales. She is passionate about helping people find the best deal for their needs.
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