Saving money is one thing...but what about making money while you save?
That's essentially what a high interest savings account will do for you – put money away, earn interest on it. Simple.
So grab that stashed cash under the mattress – or more preferably from your investment account – as it may be time to drive down to your local bank and trust them with some of your hard-earned money.
Let's look at:
- the best high interest savings accounts in Canada,
- the nuts and bolts of savings accounts,
- tax implications, and
- is it worth having a savings account?
The best high interest savings accounts in Canada
And now (drumroll please), time for a list of the highest interest savings accounts out there right now in Canada:
Please note: These rates are subject to change at any time, so for the most up-to-date and accurate information please visit the financial institution directly. There are more savings accounts that offer anywhere from 0.05%-1% interest rates, but are not included here.
|EQ Bank Savings Plus Account||
|Steinbach Credit Union||
|Alterna Bank e-Savings Account||
|CIBC eAdvantage Savings Account||
The nuts and bolts of savings accounts
In some cases, a higher interest rate may be offered when you have more money to put into a savings account. So people with large sums of money are oftentimes offered higher rates…but there’s a catch.
In a savings account, your money is only insured up to $100,000 by the Canadian Deposit Insurance Corporation (CDIC). For the big banks, the higher interest rates with large deposits start at $250,000, meaning more than half your money is hanging out on the clothesline if a big financial storm comes and the bank goes belly-up.
Doomsday scenario, I know, but interesting to think about since it’s your hard-earned money at risk.
Tax implications of savings accounts
As mentioned earlier, all interest from savings accounts is taxed at your marginal tax rate. And once you take into account the interest rate, minus paying tax on any money earned these days, you’re not left with much.
Factor inflation into it all and you guessed it...you’re losing money by keeping cash in a savings account.
So for me, I’m still going to keep my money where it is and see what happens with interest rates. Chances are they’re going to go up...but by how much? And when?
Is it worth having a savings account?
It’s amazing how when the BOC raises interest rates, the big banks follow with raising their mortgages almost instantaneously. But savings accounts…they really drag their feet on raising those rates.
And take a look at the big banks. It seems to me that they really aren’t interested in offering competitive savings accounts as they typically have the lowest interest rates out there.
So is it worth having a savings account at all?
Well, a high-interest savings account should be considered to have a balanced financial portfolio. It offers a quick way to access money in case of emergencies or when saving for a big purchase – such as a car, house or university degree – and it’s seen as a stable place to put cash because it is insured, which may be worth the price of having money grow slower than inflation.
But how much should be in this account? And how much does keeping it there cost you? Those are all things you have to decide when running your finances.
Whether or not to put your money into a high-interest savings account is really a question of how hard you want your money to work for you.
With the Bank Of Canada’s target inflation rate of 1-3%, you have to find a savings vehicle that is both higher than inflation plus any taxes you will pay on the profits from your interest earned outside of tax-free and tax deferred savings vehicles, like a TFSA or an RRSP.
Anything that is above a 2% interest rate is interesting, but likely won’t cut it when thinking of ways to save for a life after work – but this doesn't come around often for savings accounts.
Do you have a high-interest savings account worth mentioning?
Is there a bank out there worth stashing your cash with that I missed?
I’d love to know – because it feels like savers still have a hard time making money off their hard earned cash these days.