High interest savings accounts are a safe way to earn money. They offer higher interest rates than traditional accounts, which helps your money grow faster. There are many high interest savings accounts available in Canada, so it's essential to find the one that is right for you. While the number one priority for most investors is the interest rate, in reality they should consider fees, deposit insurance, and more.
This article begins by explaining high-interest savings accounts before comparing the most popular ones in Canada. Next, it will explain additional factors to consider when selecting the best account for you. Finally, it will end by comparing HISA alternatives and providing you with a step-by-step guide on how to open a HISA. Continue reading to become an expert in high interest savings accounts in Canada.
A high interest savings account (HISA) is a type of savings account that offers a higher interest rate than a traditional chequing or savings account. HISAs work by allowing you to earn interest on your deposited money. They are different from regular savings accounts because they often have less flexibility.
Typically the annual interest rates range between 0.05% to 1.80%. However, rates are affected by the Bank of Canada Rate, which may change without warning. HISAs allow you to earn a guaranteed return on your deposited money. However, this guaranteed rate will vary with the prime rate. The interest is usually calculated by multiplying your average daily balance with the daily interest rate. At the end of each month, you will receive a deposit of your earned interest.
In most cases, you can transfer in and out of your HISA using Interac eTransfer, ATMs, bank transfers and more. However, each transaction may cost you. While many fintech banks enable free transactions, the larger banks may charge up to $5.00 per transaction. Today, most HISA accounts no longer have monthly fees or minimum balance requirements.
Aside from the interest rate, additional factors should be considered when selecting a high interest savings account. Given the interest rate will change over time, today's best account may not be number one next month. While some individuals will constantly monitor and transfer into the highest-rate account, this may not be right for you. However, these additional considerations tend to be constant. Below we have included six additional ways to compare the best long-term HISAs in Canada.
1. Deposit Insurance
This is perhaps the most critical consideration. CDIC protects your deposits in the event of a bank failure. This means your life savings will not disappear if your bank collapses. Some banks may have CDIC insurance while others won't. Always ensure your HISA has provincial or CDIC deposit insurance.
CDIC is a guarantee from the government that will protect you up to a certain amount. If you have more than $100,000 saved, you should consider splitting it among multiple banks (or account types) to ensure it is protected. If your bank is not CDIC insured, it may have provincial deposit insurance. For example, BC has the Deposit Insurance Corporation of British Columbia (DICBC). This will protect your deposits up to $250,000.
2. Ease of Use
You'll want to ensure the HISA is easy to use and accessible. These tend to have a significant physical presence and numerous ATMs. Additionally, they have well-designed online and mobile banking applications. If you don't want to be limited to online banking, a larger bank may be better for you.
While fintechs typically have better interest rates, you will be limited by transfer methods. For example, EQ Bank only allows online deposits. However, Simplii and Tangerine are partners of CIBC and Scotiabank. These HISA options provide a good combination of high interest rates with ease of use.
3. Promotional Rates
Many of the larger banks offer temporary higher interest rates. The promotional period can range from 1-3 months. After this time, the interest rate returns to the regular HISA rate, which is often much lower. If you plan to move your money around frequently to take advantage of these rates, you may want to consider an account with no transfer fees. The following accounts currently offer promotional rates:
|Bank Name||Promotional Rate|
|Scotiabank MomentumPLUS Savings Account||Up to 3.55%, until December 31, 2022.|
|Tangerine High Interest Savings Account||3.25%, first five months|
|CIBC eAdvantage Savings Account||Up to 3.25%, first four months|
|Simplii High Interest Savings Account||Up to 3.00%, first four months|
|RBC High Interest eSavings Account||2.70%, first three months|
4. Transfer Fees
When transferring money into and out of your HISA, you may be charged a fee. These fees can range from $0-$10 per transaction. Additionally, different types of transfers have varying prices. In general, fintech banks tend to have lower transfer fees than larger banks.
RBC's eSavings account charges you $1.00 per Interac Transfer and $3.00 per ATM usage. However, most larger banks don't charge transfer fees if you're transferring to or from a chequing account of the same bank. For example, there are no eSavings account fees if you transfer to another RBC account under your name.
As a default, most HISAs operate in Canadian Dollars. However, it's common to see HISAs in USD. You may prefer a USD HISA if you are saving to purchase a home in the United States or aim to retire there. This will remove any exchange rate risk to make your objectives more predictable. Additionally, currency speculators may prefer the USD equivalent if they believe it will appreciate relative to CAD.
6. Lockup Periods
Although uncommon, a lockup period is something to be aware of. It is the timeframe you cannot access your money without being charged a fee. This ranges but is generally 3-6 months. If you are saving for a short-term goal, you will want to avoid an account with a long lockup period as it restricts your access to funds. However, you can usually receive a higher interest rate by locking up your deposit. If lockups are no issue, you can earn a higher interest rate through a Guaranteed Investment Certificate (GIC).
Now that you know what to look for, this section will provide a step-by-step guide on how to open a HISA. The process is quite simple and can be done entirely online in 10-15 minutes. Before you begin, most banks require you to meet the following criteria:
Step 1: The first step is to visit the bank website you wish to open an account with. You can easily navigate their HISA page by clicking the "Get This Account Now" button above.
Step 2: Now that you are on the right page, take a moment to review the HISA offerings. Make sure to analyze the interest rate and transfer fees.
Step 3: If you decide the account is good, you can proceed by applying on their website. You'll need to provide personal information such as your name, address, and date of birth. You will also need to provide financial information, such as your employment status and annual income.
Step 4: After reviewing your information, you can submit your application. The bank will then review your application and make a decision. If approved, they'll send you an email with instructions on how to activate your account. And that's it! You've successfully opened a high interest savings account and can start earning more on your money.
If you're not sure a HISA is right for you, there are other options to consider. While a HISA provides reasonable interest rates, it is also subject to tax. This section will compare alternatives to a HISA. Only options that have streamlined withdrawals have been included.
Regular Savings Account
A regular savings account is a basic savings account offered by most banks. The interest rate is often lower than a HISA, but there are no deposit limitations. A regular savings account provides more flexibility for a lower interest rate.
Tax-Free Savings Account (TFSA)
A Tax Free Savings Account is an investment account that allows your money to grow tax-free. While you can deposit money into a high interest TFSA, it's generally better used to invest in GICs, stocks, and mutual funds. If you deposit in a high-interest TFSA, you will likely receive a lower interest rate than regular HISAs. On the contrary, there is no tax on interest. However, there are annual contribution limitations of $6,000.
Guaranteed Investment Certificate (GIC)
A GIC is a type of investment that offers a guaranteed rate of return over a set period. The interest rates are typically higher than a HISA but come with lockup periods ranging from 30 days to 10 years. The GIC is not an account and must be held in an unregistered or registered investment account (TFSA, RRSP). There are no taxes if you hold the GIC in a registered account
A high interest savings account is a great way to grow your money. By shopping around and finding the best rate, you can earn more on your money than with a regular savings account. When choosing a HISA, compare each account's interest rate, fees, and ease of use. Once you've found the correct account, opening one is simple and can be done entirely online.
Are HISAs good for long-term investment?
HISAs are best used as short-term investments if you plan to use the money within three years. For example, they are great if you plan to buy a house soon. The interest rates are subject to change and generally do not keep up with inflation. If you're looking for a long-term investment, you should consider other options such as GICs or TFSA/RRSPs.
What are HISA promotional rates?
Promotional rates are incentives that banks generally offer to new customers. They are higher than the regular HISA interest rate and only last for a specific period (usually 1-4 months). After the promotional period ends, the interest rate goes back to the regular rate.
For example, if you open a new account and the bank is offering a promotional rate of 2.00% for three months, you would earn that higher rate during that time frame. After three months, the interest rate would revert to the regular, lower rate.
How do HISAs earn interest?
The interest you earn is calculated daily but deposited into your account monthly. To solve this, you must begin with finding your daily interest rate. For example, if your BMO Savings Builder has an annual interest rate of 1.00%, your daily rate would be 0.00274%. To calculate your daily interest, you would multiply this rate by your closing balance of that day.
As an example, if your daily closing balance was $10,000, you would earn $0.27 of interest. If there were 30 days in the month, you would receive a deposit of $8.23 at the end of the month. Assuming no changes to your balance, you would begin earning interest on $10,008.23 the next month. Note that your daily interest rate may change with the Prime Rate.
Do you pay taxes on HISAs?
The interest you earn in your HISA is taxable. The government considers this money to be taxable income and will tax it accordingly. To avoid paying taxes on HISA interest, you can open a high interest TFSA account. However, these accounts have annual contribution limits and are better used to invest in stocks. Depending on your province, you may receive a higher or lower income tax rate.
What is CDIC Insurance?
The Canada Deposit Insurance Corporation (CDIC) is a federal Crown corporation that protects Canadians' deposits in the event of a bank failure. All banks that are members of CDIC are required to provide this insurance on eligible deposits up to $100,000 per account type. Ensure your financial institution is CDIC insured to protect your savings from bank failure.