Best Savings Accounts in Canada
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What is a Savings Account
A savings account is a kind of bank account used to save money over a long period of time. Unlike a chequing account, which is typically used for day-to-day transactions like paying bills, savings accounts are meant to be used to achieve long-term goals without a large number of transactions. You can open a savings account with any bank or financial institution, and your savings account doesn’t have to be with the same bank you use for your daily banking.
Because savings accounts aren’t meant to be used for everyday transactions, many savings accounts pay a higher rate of interest on money that’s deposited. They also offer fewer free transactions and charge higher transaction fees than many chequing accounts. There are a number of savings accounts in Canada that offer high interest rates without charging monthly fees or transaction fees. Consider interest rates, transaction fees, and ease of use when comparing savings accounts.
Types of savings accounts
There are a number of different types of savings accounts available to Canadians, each with a different intended purpose. A few different types of savings accounts are:
High interest savings accounts
High interest savings accounts are savings accounts that pay a high rate of interest compared to other savings accounts available on the market. The best interest rates in Canada are currently around 2.25%. In Canada, you’re required to pay income tax on the money you earn in a non-registered high-interest savings account.
Tax-free savings accounts
The name tax-free savings account (TFSA) actually refers to a tax shelter that can be used with a number of different investment products, but there are savings accounts available as a TFSA. TFSA savings accounts typically offer a lower interest rate than high interest savings accounts, but as the name suggests interest earned is tax-free. You can only open a TFSA if you’re a Canadian citzen age 18 or over.
Youth savings accounts
Many banks and financial institutions offer special savings accounts just for children. Youth savings accounts sometimes offer special incentives and educational tools to teach kids how to save money and how to bank.
Seniors savings accounts
Less common than children’s accounts, seniors savings accounts can offer special interest rates or reduced fees for Canadians who are 60 and over.
How to choose the right savings account
Each savings account comes with its own unique features and it’s important to compare savings accounts carefully to find the one that’s right for you. There are a few things to look for when searching for a new savings account:
Rate of return
When you deposit money in a savings account, you earn interest on the amount you deposit. Some accounts offer everyday high interest rates, and some offer “teaser” rates that start off high and then drop off after a certain length of time. Ignore flashy looking interest rates that don’t last for long, and look instead for accounts that offer the highest first-year return.
Some savings accounts charge fees for transactions including deposits, withdrawals, and transfers to and from other accounts. Look for savings accounts that offer a number of free transactions every month, especially if you know you’ll be making a lot of transactions.
There are lots of great high-interest savings accounts available that don’t charge monthly fees even if you don’t have a lot of money saved. Don’t get tricked into thinking you need to pay a monthly charge for the privilege of earning a high interest rate on your savings.
When you deposit money in a bank account in Canada, it’s usually protected by the Canadian Deposit Insurance Corporation (CDIC). Some financial institutions aren’t covered by CDIC insurance, so make sure you know how your money is insured.
Sometimes banks will offer extras to stand out from their competitors. Keep an eye out for special offers like introductory interest rates and cash bonuses, but be aware that another savings account without those gimmicks might earn you more interest in the long run. Better extras to look for are free transactions, free Interac® e-Transfers, and better online/mobile banking experiences.