Having a savings account with a good interest rate can be an effective way to grow your money and fight against inflation. But with so many options out there, how do you find the best account for your needs? Compare some of the savings accounts below and keep reading to find out how to narrow down your choices, avoid common traps and get the most out your account.
The primary feature of a savings account is to safely grow your money over time – an extra 1% yield on an account with a balance of $5,000 will pay out about $50 each year, which is more than you’ll likely pay in fees. However, if the Bank of Canada begins to raise interest rates on loans, other banks might lower savings account interest rates to avoid losing money.
Another obstacle to saving money is inflation. Your money is expected to lose up 3% of its value each year, so keeping your funds in a savings account with a high interest rate can help lessen the effects of inflation and help protect you financially.
APY or “Annual Percentage Yield,” is the amount of money made each year on an investment due to compound interest. This is also called EAR or “Earned Annual Interest.”
APR or “Annual Percentage Rate,” is the interest rate charged during a certain time period multiplied by the number of time periods in a year.
The APY is a higher figure than the APR, because the APY shows you how much interest you’ll earn compounded over an entire year. The APR does not calculate compounding interest, showing you instead how much interest you’ll earn on a monthly basis. (This is assuming that interest is calculated monthly, which you should always verify with your financial institution.)
Yes. As with any income, you’ll have to pay taxes on the interest you earn from funds in your savings account. Each year, your financial institution will give you a return of investment income slip (T5), which you have to submit along with your tax return to the Canada Revenue Agency (CRA).
To avoid paying tax on interest earned on savings, you can look into opening a Tax-Free Savings Account (TFSA), which allows you to grow your money without having to declare earnings as income (a yearly limit applies). There are limits to how much you can deposit into, and withdraw from, a TFSA each year. Speak to a bank representative or a financial advisor to learn more.
Use no-fee savings accounts to protect your money
Fees can rob you of the interest you’d earn in your savings account. Fortunately, you can still get great rates with an account that charges absolutely no monthly, quarterly or annual fees to maintain it.
Below are just some of the Canadian banks that offer no-fee savings accounts. Other options exist including the TD ePremium Savings Account (0.95% with a $10,000 minimum balance) and the RBC Enhanced Savings Account (tiered interest rate).
Tangerine Savings Account 0.25% interest rate
EQ Bank Savings Plus Account2.00% interest rate
Scotiabank MomentumPLUS Savings Account starting at 0.5% interest rate
BMO Smart Saver Account 0.8% interest rate
Savings accounts that don’t require a minimum balance
Sometimes the savings accounts with the best rates also have the most hoops to jump through. If you want to grow your savings without putting down a huge sum up front or worrying about maintaining a minimum balance, look for banks that offer savings accounts with no minimum deposit or a low-minimum deposit. Below are just some examples of Canadian banks that offer such accounts.
Tangerine Savings Account
EQ Bank Savings Plus Account
RBC High Interest eSavings Account
TD Every Day Savings Account
How do I find the best savings account for me?
Think about the ways you save money. Do you need regular access to your accounts or do you want to tuck a large chunk of money away for the future? Match your savings style to the points below to help you choose the best savings account type for your situation.
What are the benefits and drawbacks of savings accounts?
There are so many savings options out there, it can be hard to determine how to pick the best for your savings style. Here are the benefits to look for:
A $0 minimum deposit. With some savings accounts, you can open the account with a low, or even no, initial deposit. Some accounts don’t require a minimum monthly balance requirement to earn interest or avoid fees.
No monthly fees. Thanks to competition, you’ll find that many banks waive monthly maintenance or account-keeping fees.
Set it and forget it. Savings accounts allow you to grow your money without thinking about it. You can make one large deposit and let it earn interest, or schedule payments into your account to help it grow.
Protect other accounts. A savings account can be used to protect yourself against occasional shortfalls of money. If you have a bill payment or time-sensitive expense coming out of your chequing account but don’t quite have the money to cover it, having funds set aside in a savings account can make it easy to cover the gap. Of course, the trick is to remember to top up your savings again to avoid draining your account.
Savings accounts are a great place to start growing your money, but there are also other ways to make your money work even harder for you. Consider these drawbacks:
Limited accessibility. Banks often limits the amount of activity you can have in your savings account, and you may not be able to access certain savings accounts with a debit or ATM card.
Minimal return on investment. Savings account interest rates often hover around the rate of inflation. To earn a better return on your money, look beyond savings accounts.
Is it better to have separate or joint savings accounts?
Joint accounts are a great way to reach collective financial goals. Generally, joint accounts allow up to two account holders, but some providers allow for even more. Before opening a joint savings account, consider if it’s right for your financial situation. Consider the pros and cons below:
See lower fees and more interest with a high balance.
Less legal complications if a partner dies.
Easier to manage household budgeting and long-term goals.
Creates accountability between you both.
Easier to reach higher minimum deposits for bigger savings.
Have less financial independence.
Could create communication issues regarding spending.
Creates complications in the event of a separation or divorce.
Tough to divide funds for individual costs like a car accident or an expensive hobby.
When interest rates are low, where can you get the best return for your money? If the best high-interest savings accounts aren’t enough or don’t fit your financial goals, there are other ways of getting the most out of your money.
Consider these other ways to save:
If you want to save up for a major purchase or save for retirement, you can put your money into the cash value portion of a whole life insurance policy or a universal life insurance policy. A portion of the payments you put towards these policies is put into a tax-advantaged investment scheme, which is chosen based on your needs and risk tolerance. If you need access to cash, you can withdraw it from the investment, borrow against your policy, surrender the policy or even sell it.
Earnings on whole life insurance investments are based on whether the insurance company’s assets are profitable. On the other hand, universal life insurance funds can be invested however the policy holder wants, so earnings are based directly on market performance.
If you want to save up specifically for medical expenses, then a health savings account may be right for you. Using a health savings account, business owners agree to set aside funds for their employees’ medical expenses up to a certain amount. When medical needs arise, employees pay for them and are then completely reimbursed by their employer. The advantage is that these payouts are 100% tax deductible for business owners and 100% tax free for their employees!
This is what makes health savings accounts especially good for self-employed people and contract workers. They can deduct their contributions to these accounts from their business taxes but also receive funds from these accounts – tax free – to cover their medical expenses.
Bear in mind that, to open a health savings account, you’ll need a high-deductible health insurance policy, and you’ll also have to pay a penalty if you spend the money on anything unrelated to medical expenses.
RESPs provide tax advantages for money saved up for future education expenses. As you put aside money into these plans, the Canadian government will also contribute in the form of grants or bonds, and your provincial government may contribute as well. Deposits into these plans are still taxed, but they can grow tax free and be withdrawn from the plan tax free at any time for any reason. Beneficiaries can withdraw funds when they enrol in college, university or any other qualifying program.
If you’re interested in higher rates of return and are willing to accept more risk, you could consider investing in government or corporate bonds. There are no guarantees with bonds, but they’re less volatile than stocks, mutual funds and exchange traded funds (ETFs).
Either the government or company whose bonds you buy pays them back with interest or it’ll default on them. Historically, however, the likelihood that the government will defaults on bonds is pretty unlikely, and as for corporate bonds, it’s up to you to do your research and buy from a reasonably stable company that’ll still being around when you cash in on your investment.
How to get the most out of your savings account
Make sure you keep a minimum balance. Some accounts may require you to hold a minimum balance from month to month, otherwise, you may be hit with fees. Find out if your account requires a minimum balance and make sure you keep your account above that amount.
Monitor account activity. You should always monitor account activity to stay on top of any unexpected charges or fees. Most banks and financial institutions have apps that allow you to review activity on your savings account from your computer or mobile phone.
Limit your transactions. Keeping your transactions within your maximum allotment is not only good for avoiding extra transaction fees (which usually range from $0.50 up to several dollars per transaction), but it’s also good for helping you to preserve your savings. Less activity means less spending and more growth.
Frequently asked questions
You can open a savings account even if you’ve been bankrupt, don’t have a job, or have nothing to deposit right away (unless the account requires a minimum balance).
In most cases, you can apply and open a savings account online as long as you provide 2 pieces of identification and proof of residency (such as utility bill, phone bill or credit card statement with your name and address on it). You may be asked to provide your Social Insurance Number (SIN), and, if you’re a new customer, you may need to go into a branch to verify your identity.
At least one, but preferably both, pieces of ID should have your photo on it to prevent being rejected as insufficient. (Note: additional regulations apply – see www.canada.ca for details). The following pieces of ID are acceptable:
Current foreign passport
Canadian birth certificate
Canadian Old Age Security card
Debit card, bank card or Canadian credit card with your name and signature on it
Canadian Social Insurance Number (SIN) card
Employee ID card that has been issued by a well-known employer in your area and that has your picture on it
Certificate of Indian Status
Permanent resident card
Provincial or territorial health insurance card if allowed to be used as ID under provincial or territorial law (not all provinces allow health cards to act as proof of ID)
Youth savings accounts are designed to encourage kids to save, often by charging little to no fees and allowing unlimited transactions and unlimited cheques.
Different banks across Canada may set different ages under which a minor qualifies to open a youth savings account. To open one of these accounts, the minor will need to be accompanied by a parent or guardian who will open the account for them.
Once the minor reaches the age limit, their youth savings account will automatically convert into an adult savings account. Be sure to research the details of the default savings account your child’s youth account will convert to, as you may find it more beneficial to convert to a different type of savings account with a higher interest rate or maybe greater flexibility to move money between accounts.
The first step should be to contact your branch and show them any documentation you have regarding your issue such as receipts, bank statements highlighting relevant transactions, savings account agreement papers, emails or messages with bank personnel etc. Note that any problems, especially discrepancies between your account records and what you expect to be there, should be reported as soon as possible so that an investigation can be opened.
If your bank refuses to cooperate, you can take the dispute a step further and call the bank’s ombudsman, whose job it is to arbitrate disputed between customers and the bank. If the dispute is still not solved, then you can take it up with your provincial regulator, as list of which is provided below.
Contact the Financial Consumer Agency of Canada (FCAC) is you can’t find information on your bank’s processes for handling complaints or if you have been experiencing significant delays. Remember that the FCAC is unlikely to help you if you haven’t tried to resolve the issue with the bank at both the branch level (with your bank manager) and corporate level (with the bank’s ombudsman) first.
Generally, you can take rolls of coins or loose change to your bank and get it exchanged for bills. To avoid lengthy processing and long customer wait times, some banks only allow customers to process large amounts of coins at certain branches. Check with your bank to see where you can process your coins. (Tip: rolling your coins in advance will help you know how much cash you can expect to get and it’ll also save a lot of time at the branch. You can usually buy coin rolls anywhere office supplies are sold.)
Alternatively, some large grocery stores and superstores have coin processing machines like Coinstar that count your change and give you cash in return without the aid of a teller. Some fees may apply. In Canada, Coinstar charges 11.9% of the amount you’re having processed (as of April 2019). Click here to locate a Coinstar machine near you.
You can ensure that you don’t receive any annoying telemarketing calls by joining Canada’s National Do Not Call List (click on the link or call 1-866-580-DNCL to register your phone number). This may not guarantee that you stop receiving unwanted telemarketing calls, but it can certainly cut down on the number of calls that you receive.
You can also phone your bank to complain about these calls and ask that your number be taken off the bank’s marketing list. Note that your bank may be required to call you to follow up with specific information regarding your transactions or your account(s), such as security threats or amounts owing.
The exact time of day you make a transfer (before, during or after regular business hours and/or during holiday hours) as well as how you made the transfer (online, in person or over the phone) may impact the time it takes to process.
Transfer times can vary depending on the cut-off time for transfers imposed by your bank and the sending or receiving bank. Each bank has a different system for handling transfers, so there can be discrepancies in how long it takes for your funds to arrive in the recipient’s account, especially if the account is with a different bank.
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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