Savings Accounts in Canada

Best Savings Accounts in Canada

Anyone with a long-term view of their financial future should hold a savings account. Although the interest rates with such accounts remain in the low single digits, with sufficient financial discipline, you stand to gain enough over the years for it to be worthwhile.

For that reason, you should be looking at banks with high-interest savings accounts (HISAs). Credit unions and banks have the discretion to adapt their interest rates according to the policies of the Bank of Canada, but you will find that some are more generous than others.

What is a Savings Account?

Savings accounts are financial instruments created by banks in order to encourage people to hold more money in the bank without spending it. The purpose behind it is to give the banks sufficient liquidity to engage in loans and acquisitions.

In return, the bank gives you a small return on your holdings — interest earned — as a form of passive income. Naturally, the greater your principal is, the greater this form of income will be. You can expect to see interest rates no less than 1%.

Types of Savings Accounts

Canadian savings accounts are not all equally created. Some will benefit you more than others according to how you arrange your limited tax-deducted contributions. Accordingly, the best savings account in Canada come in these forms:

  • Registered Retirement Savings Plan (RRSP) – Mainly used for retirement purposes, with a tax-free interest rate. The moment you decide to withdraw from the account results in its taxation. However, as long as your funds are not in a locked-in plan, you can withdraw them without suffering penalties. When you turn 71, the withdrawal is mandatory via three maturity options, depending on how you would like to be taxed.
  • Tax-Free Savings Account (TFSA) – More of an investment account, as it allows you to gain tax-free interest rate on dividends, cash, and stocks. Unlike with the RRSP, your withdrawals from TFSA will not be taxed because your contributions were taxed. Of course, both RRSP and TFSA have yearly contribution limits, depending on the current government’s policy.
  • Hybrid Savings Account – These types of savings accounts add the features of chequing accounts into the mix. Accordingly, they provide the best of both worlds — higher interest rates with more free transactions and free Interac e-Transfers. You would not maximize your interest rates as you would with a “pure” savings account, but you wouldn’t have to worry about the number of feeless withdrawals and transactions you have left.
  • S. Savings Account – Given our close proximity to the U. S., along with cultural, financial ties, Canadian banks are catering to those Canadians who have dual citizenship or are frequent travelers to the U.S. Needless to say, the contributions to this account are in USD denomination only.

How to Choose the Best Savings Accounts

The first thing to do is to rate your potential financial institutions according to the interest rate it gives you. The range is almost always between 0.90–2%, but there are some exceptions. For instance, you can get a 2.5% interest rate with a Tangerine savings account, while most others, such as Alterna bank, follow the middle ground of 1.4–1.7%.

For saving money, the higher this number the better, as it needs to account for the Canadian inflation rate, which sits at around 2%. Another thing to keep in mind is checking if the bank’s interest rate is not promotional/introductory, but for the long haul.

After you have decided on your interest rate, find out what kind of limiting conditions it has. Although a savings account is intended for steady contributions instead of withdrawals, sometimes you will have to. In such scenarios, knowing how many free monthly withdrawals you have will save you quite a bit of money on fees.

Lastly, consider the availability of the bank’s ATMs and branches in your area.

Savings Accounts FAQ

How does a Savings Account Work?

Any deposit you make in your savings account will generate interest rate, meaning that a small percentage of the total of your money in the account will generate income. This is because you are allowing your money to be used by the bank for its offering of financial products.

What is the difference between a chequing and saving accounts?

Chequing is for frequent use with unlimited free transactions and low-interest rates, while a savings account is for regular contributions, rare withdrawals, and high-interest rates.

How much money should I keep in my savings account?

The more you can set aside as a principal, the more you will generate through the interest rate.

How to calculate interest on a savings account?

Depends if you want to calculate your interest rate by day, month, year, or anything in between. Here is a comprehensive and easy-to-use calculator with all the options.

Can I Open a second savings account?

There are no limits to the savings accounts. However, those that are tax-advantaged count the limited contributions across all of them.

Can you pay a credit card from a savings account?

Most banks don’t allow either debit or credit cards to be paid from a savings account.

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