Best Savings Accounts in Canada
While easy cash access and a chequing account provide the flexibility and available purchasing power necessary for everyday banking needs, a good savings account is just as crucial. Canadian banks today offer a variety of savings accounts fitted to different customers, including accounts with accelerated interest rates, tax-free accounts, and special accounts for children and seniors.
What Is a Savings Account?
Savings accounts are designed to help people park their money in a less ‘liquid’ environment, where it can accumulate steadily over time and earn interest. These accounts generally impose restrictions on withdrawals and access, but such restraints are a worthwhile price to pay for vastly improved savings power.
When you deposit money into a chequing account, the bank must make it available for you to spend via debit cards and cheques. This movement of your money into and out of your account prevents the bank from lending it out to those seeking loans, so the bank instead makes its money through charging you small fees. Events like using an ATM, overdrafting your account, or having too low a balance may incur charges.
Savings accounts, on the other hand, wield a powerful incentive to keep account holders from moving their money out of the account: high interest rates. Since the money stays in the account, banks can then loan the money out to other customers, making a profit off the difference between the interest rates charged on their loans and the interest rates they give for their savings accounts.
Who Needs a Savings Account?
Those with money sitting in cash, or with funds that they will have no immediate need for, would be very wise to evaluate savings account options. Anyone who wants to gain an edge in their long-term savings efforts can benefit from one of these accounts, but in order to benefit from the high interest rates on offer they must have the discipline to leave their money in the account. Savings account owners will be compensated for their restraint and diligent deposits, with steady interest payments from the bank that help the money grow faster. This is a benefit that everyone, from young children to retirees, can and should take advantage of.
Types of Savings Accounts
Because savings accounts are so universally beneficial, there are different types available to suit every individual.
A basic savings account is one that operates in the standard manner of holding customer funds and paying them small amounts of interest. Though interest helps build wealth over time, the price for such a benefit is less liquidity, meaning you won’t have the same kind of access to your money as with a chequing account. You’ll also pay income taxes on the interest earned. Remember that some banks may charge fees for depositing money or moving it from another account, so factor this into your calculations as well.
The savings account interest rate varies between banks, but there are special accounts that offer a higher rate of return than what you’d receive with a basic savings account. When looking at these high-interest savings accounts, make sure to pay close attention to all the fees and stipulations involved, because typically the higher interest rates offered are offset by a higher minimum deposit, or tighter restrictions on withdrawals and account minimums.
Tax-Free Savings Account (TFSA)
In most cases, the interest that you earn on the money you deposit into a savings account is subject to income taxes. Typically, you must report how much interest you collected each year to the Canadian Revenue Agency, but with a TFSA, anyone over 18 can contribute and withdraw their money without paying taxes. In exchange for this advantage, banks often impose a limit on how much can be deposited each year.
Generally opened by adults on behalf of their children or grandchildren, or even by enterprising young savers, a Youth savings account helps kids learn a key lesson about money management. They can deposit money and watch it grow with interest, and some banks make educational materials available to reinforce the importance of proper financial health.
Savings accounts can also exist to hold foreign currency, such as the US dollar. For those who do business in the United States, own property there or need greater access to US financial services, having a USD savings account can help overcome obstacles that exist between the two countries’ banking infrastructures and separate currencies.
Canadians who are 60 and older can avail themselves of the country’s selection of Senior savings accounts. These operate in the same manner as regular savings accounts, but will often give special fee exemptions or interest rates to older account holders.
Best Savings Accounts in Canada
Canada has a plethora of upstanding financial institutions, each of which provide different savings account options to the country’s residents. The list below contains some of the most notable institutions that offer savings accounts, but the “best” is always subjective.
Scotiabank has many great savings accounts available, including US dollar and Euro accounts, accounts for customers with smaller balances, and accounts that accelerate savings and reduce fees. One Scotia account that stands out to us is the Momentum Plus, which incentivizes account holders to contribute to their account often without touching their money. Customers can choose a ‘premium period’ in increments of 90, 180, 270, or 360 days—the higher the period that they complete without making withdrawals, the higher the interest rate they get. The account also allows an unlimited number of self-service transactions, all with no monthly fee.
Our favourite RBC savings account encourages frequent contributions and accelerates the rate that money builds up in the account based on how much is sitting there. RBC’s Enhanced Savings uses a tiered model that starts by granting interest for a $5,000 balance and eventually reaches a ceiling of 1.50% interest on balances over $150,000. Customers with Enhanced Savings are eligible for one free debit withdrawal each month. The bank also makes a static high interest account available at 0.90%, among other worthwhile account types.
One of the best TD savings accounts is the unique ePremium account, which provides focused savings power for those individuals who do most of their banking online. The account has no monthly fee and allows unlimited free online transfers, as well as a high 0.90% rate of interest for those who maintain balances of over $10,000 in their account. This is an even higher rate than what’s offered by TD’s High Interest savings account, and the bank also has accounts for young customers, and accounts that are designed to be forgiving of more frequent withdrawals or debits.
While BMO offers savings accounts that accrue interest at up to 1.40%, the very best BMO savings account is, in our estimation, actually their most basic. We like the Smart Savings account for its lucrative all-purpose interest rate of 0.75%, without any restrictions on a customer’s minimum balance. With no monthly savings requirements, no monthly fee, and a free transfer every month, the account is one of the most straightforward strategies available for reaching short or long-term financial goals. The bank also offers US dollar accounts and a range of other account types.
No matter what you’re saving for, Tangerine offers an impressive number of savings accounts that will help you achieve your goal. Our top pick of Tangerine’s savings accounts is likely one of their beneficial retirement accounts, such as the Tangerine RSP. This account allows those who anticipate retirement to put away their money without subjecting it to taxes during their working years. A high interest rate of 1.10% boosts savings, and contributions to the account can be deducted from one’s taxable income. The bank is even running a promotion that gives new account holders a 2.50% interest rate for up to 6 months, and the possibility of receiving a $50 cash reward.
It’s easy to pick our favourite EQ Bank savings account, because there’s only one. Accordingly, EQ ensures that its Savings Plus bank account is the complete package, with a robust interest rate of 2.30%, no monthly fee or minimum balance, and five Interac e-Transfers per month. There are also other perks which make it seamless to interact between it and other online accounts, such as free electronic transfers, linked accounts, and day-to-day transactions. Finally, we appreciate EQ’s Savings Goals tool, which helps customers visualize their proximity to their goals and stay motivated to accomplish them.
CIBC has created tailored savings accounts to match the varying needs of students, children, retirees, and others. The most appealing CIBC savings account from our perspective is the remarkable eAdvantage savings account, which offers 2.30% interest on new balances for a limited time. This is an impressive rate matched with a low minimum balance of just $5,000, but the account also has no monthly fees, free Interac transfers, and more.
Didn’t See the Right Savings Account for You?
Remember that this list isn’t exhaustive and we’ve merely scratched the surface of all the excellent savings accounts available from Canadian banks. If you didn’t see one that fits your lifestyle, just let us know via email, and we’ll be happy to make a suitable suggestion or two.