Get ready to grow your savings faster with a high-interest savings account.
By Barry Choi
Knowing where to put your savings can be a struggle. Investing can lead to high returns, but make it harder access your cash in a pinch. While your standard savings account is always accessible, interest rates can be low. This can be hard to swallow as the cost of living continues to rise.
If you are looking for low risk, but hoping for some modest returns, high-interest savings accounts (HISAs) may be just the answer.
Introduced to Canadians more than two decades ago, HISAs offer higher interest rates than your standard day-to-day savings accounts. Rates for HISAs are higher than they have been in years and are expected to rise even more. This is a result of the Bank of Canada raising target interest rates four times so far in 2022. On July 13, they announced the largest increase yet, bringing the overnight rate to 2.50 per cent with hopes of calming inflation, which hit 8.1 per cent in June.
When the Bank of Canada raises rates, other lenders usually follow their lead. This is bad news if you have debt, but good news if you have money in the bank, as higher rates mean higher returns.
Even though HISAs typically pay significantly more interest than a chequing or savings account from a traditional bank, many people are hesitant to set one up. Here’s what you need to know about HISAs, including how to set one up so you can start seeing your savings grow.
They pay high interest
The obvious reason to get a HISA is for the high interest that they pay. For example, digital banks such as EQ Bank, Neo Financial, and Oaken Financial currently offer HISAs that pay 1.65 per cent to 1.80 per cent interest. While that may not seem like a lot, daily savings accounts typically pay next to nothing. Even then, you may be required to keep a minimum amount in the account before you start earning interest.
More financial institutions have started introducing their own HISAs, however, their interest rates are typically lower, around .30 per cent to .50 per cent . When signing up for a high-interest savings account, watch for promotions such as an increased interest rate for three months on new deposits. Some savvy customers will constantly shuffle their money around from one bank or credit union to another to maximise their returns.
There are typically no fees
The other reason it’s worth signing up for a HISA with a digital bank is that there are typically no monthly fees or minimum balance requirements. In addition, you’ll often get unlimited transactions, which include free Interac e-Transfers. If you normally make a lot of transactions, this can significantly reduce the fees you pay for your banking.
With savings accounts, many traditional banks no longer charge a monthly fee, but you may have a limited number of transactions unless you keep a minimum balance.
Unfortunately, Canadians are all too familiar with banking fees. High-interest savings accounts are a welcome role reversal, where banks are paying you for the privilege of holding your money.
You can easily transfer funds
Whether you opt for a HISA with a digital bank, traditional bank or credit union, accessing your money is surprisingly easy. You can link your HISA directly to your bank accounts and transfer money as needed. That said, these types of transfers can sometimes take up to two business days to complete.
If you need access to cash immediately, you could take advantage of the free e-Transfers. Alternatively, a few digital banks, such as Simplii and Tangerine offer debit cards so you can withdraw funds from ATMs.
It’s a good place to hold your cash
A HISA is an ideal place to hold cash if you have short-term goals or are unsure what to do with your money right now.
A high-interest savings account might be a good place to:
- Build an emergency fund
- Save for a home or car
- Protect your savings from inflation
- Let your savings grow through interest
When you have short-term goals, keeping your money safe is essential. That’s why a HISA is the best place to put your money. That said, rates for Guaranteed Investment Certificates have climbed as of late. Purchasing a GIC with a term that lines up with your investment timeline is another option to earn interest.
Your money is insured
If you open a HISA with a Canada Deposit Insurance Corporation (CDIC) member, your deposits are insured for up to $100,000 per eligible account. That means if your financial institution were to ever fail, you’d be able to get your money back in just a few days, thanks to CDIC insurance.
Eligible accounts include deposits held:
- In one name
- In more than one name (joint accounts)
- In a Registered Retirement Savings Plan (RRSP)
- In a Registered Retirement Income Fund (RRIF)
- In a Tax-Free Savings Account (TFSA)
- In a Registered Education Savings Plan (RESP)
- In a Registered Disability Savings Plan (RDSP)
- In a trust
That means you could have up to $800,000 in coverage for various accounts at a single bank. You could open up accounts at another financial institution if you need more coverage.
If you bank at a credit union, your deposits would also have insurance. The insurance coverage would fall under the regulatory authority overseeing the credit union in the province or territory you reside in.
They’re easy to set up
Many people don’t realize that setting up a HISA can be incredibly easy. To open an account online, you typically need the following requirements:
- You must be a Canadian resident
- You must be the age of majority in the province or territory in which you reside
- You have a Social Insurance Number
- You have an email address
Setting up your account is often done online and only takes a few minutes. You’ll likely also need to provide a photo ID and your mobile device number to confirm your identity.
Once your account is opened, you can link any external bank accounts by following the instructions in your account. It should only take a few days, so you’ll be set up in no time.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.