Q: Which savings accounts offer the best interest rates?
A: When it comes to savings accounts, the interest rate is essentially money that a bank will pay you to hold your money in an account with them. Why? Simply put, it increases their assets when you have money held with them.
While regular savings accounts allow users to earn a small amount of interest, high-interest savings accounts (HISAs) offer much higher rates, giving you more bang for your buck.
Many Canadians make the mistake of leaving large amounts of cash in traditional savings accounts that earn around 0.01 per cent interest, says Toronto-based finance influencer Reni Odetoyinbo. “Even moving money to an account that earns two to four per cent interest can make a meaningful difference over time, especially with larger balances,” she says. “For example, $10,000 earning four per cent interest generates about $400 annually before tax, compared to almost nothing in a standard savings account.”
HISAs from traditional banks typically pay lower interest rates than online or digital banks, says Jason Heath, managing director at Objective Financial Partners.
Regardless of where you open a high-interest savings account, Heath says to watch out for temporary promotional rates (unless your deposit is only going to be held in the account temporarily). Simplii’s high-interest savings account, for example, currently offers an introductory rate of 4.6 per cent for new clients for the first five months, but the regular rate on balances up to $50,000 is 0.30 per cent.
Odetoyinbo adds that it’s important to know what the ongoing interest rate will be after the promotion ends, and keep in mind that rates can change frequently depending on the market. Some lenders may also require you to keep a certain amount of money in the account to earn interest.
When opening a high-interest savings account, Odetoyinbo recommends choosing an institution that offers the best interest rate over the long term, is insured by the Canada Deposit Insurance Corp., and has low fees.
Heath says a high-interest savings account is a good place to stash money for an emergency fund or a short-term savings goal. Keep in mind that any interest you earn in a HISA counts as taxable income.
If you’re investing for the future, Heath says, HISAs don’t compare with the long-run return potential of stocks. For long-term savings, you may want to put your money in a tax-free savings account (TFSA) or registered retirement savings plan (RRSP). These are tax-sheltered accounts where you can hold investments such as stocks, bonds, ETFs and GICs, in addition to HISAs. You can open a TFSA HISA to earn interest tax-free; just be aware of your contribution limit, which you can find through the Canada Revenue Agency’s My Account online.
Also, if you have debt with a higher interest rate than your savings account rate, Heath says you could be paying more interest on your borrowed funds than you are earning from your savings — which means you would be falling behind overall.
For example, if you have debt with an interest rate of 10 per cent and a savings account that earns two per cent interest, consider the math. Heath points out if you have $100 of debt, you will pay $10 of interest after a year. If you have a savings account, it will only earn $2 of interest.
“If you have a small high-interest savings account as an emergency fund, that is one thing. But building savings in a high-interest savings account when you have debt may not be a good strategy,” Heath says.
Based on data from Ratehub and Cannex, these are the best interest rates offered on savings accounts in Canada right now:
These rates are based on an account balance of $5,000.
• Saven Financial High Interest Savings Account: 2.85 per cent
• Oaken Financial Savings Account: 2.8 per cent
• EQ Bank Personal Account: 2.75 per cent
• Wealth One Bank Canada High Interest Savings Account: 2.6 per cent
• Parama Credit Union Daily Interest Premium Savings Account: 2.5 per cent
• Neo Financial Savings Account: 2.5 per cent
• Canadian Tire Bank High Interest Savings Account: 2.4 per cent
• Hubert Financial High-Interest Savings Account: 2.3 per cent
• General Bank of Canada High Interest Savings Account: 2.2 per cent
• Laurentian Bank High Interest Savings Account: 2.2 per cent
Money Coach is a biweekly feature that helps Canadians find helpful solutions to personal finance challenges. If you have a question, email Lora at [email protected].
