According to the Canadian Bankers Association, there are more than 100 types of bank accounts available to Canadians. If you’re searching for an account that can help you save more quickly, you may want to consider high-interest savings accounts (HISAs).
While the interest rate is an important factor when comparing HISAs, there are other features to consider as well. Some HISAs have low transaction fees, minimal service charges, and cash-back rewards.
Take a look at the top options listed below to choose the best High-Interest Savings Accounts in Canada.
Guide to high-interest savings accounts in Canada
HISA stands for “high-interest savings account.” Most banks and financial institutions in Canada offer HISAs. There are a few different types, including
- Basic HISAs
- U.S. dollar HISAs
- Tax-free savings account (TFSA) HISAs, and
- Registered retirement savings plan (RRSP) HISAs.
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What is a high-interest savings account?
A high-interest savings account is a savings account that offers a more appealing interest rate compared to other savings accounts provided by the same financial institution. The interest rate is applied to the entire balance in the account and is generally calculated daily but paid out on a monthly basis.
However, it’s important to note that the rate of return on high-interest savings accounts may be lower than other investment options. Typically, Canadian HISAs offer current rates ranging from 1% to 2.50%, although some institutions may offer special promotional rates above 4%.
Savings account vs. chequing account
When deciding which bank account to open, one of the initial decisions is whether to opt for a savings or chequing account.
Typically, a savings account is used for funds that are not immediately required. It is an ideal option if you want to save money and earn interest on it.
On the other hand, a chequing account is meant for everyday transactions such as paying bills and purchasing groceries and receiving direct deposits. As chequing accounts are intended for frequent use, they often charge monthly service fees and provide lower interest rates or none at all.
The best high-interest savings accounts:
- Simplii Financial™ High Interest Savings Account
- Scotiabank MomentumPLUS Savings Account
- HSBC High Rate Savings Account
- CI Direct Investing HISA
- RBC High Interest eSavings Account
- Achieva Financial Daily Interest Savings Account
- CIBC eAdvantage® Savings Account
- Tangerine Savings Account
- Oaken Savings Account
- Home Trust High Interest Savings Account
How does a high-interest savings account work?
A high-interest savings account (HISA) operates just like any other savings account. You deposit your money into an account at a financial institution, which may use the funds to lend to other customers. You can withdraw your money at any time, and as an incentive for keeping your money in the account, the institution pays you interest at a certain rate.
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High-interest savings account rules:
High-interest savings accounts (HISAs) typically offer higher interest rates than regular savings accounts, but they often come with more regulations and fewer benefits. For instance, HISAs usually don’t provide cheques or debit cards since they’re meant for saving money, not daily transactions. Transferring funds from a HISA to another account may take a day or two, and there may be fees for e-transfers from your HISA account.
It’s important to note that the specific rules and regulations for HISAs can vary depending on the financial institution. Before opening a HISA, it’s recommended to review the terms and conditions to fully understand the account’s features and limitations. While HISAs are ideal for achieving financial objectives, day-to-day banking should be conducted through a chequing account.
How high-interest savings accounts earn interest
The interest rate of a HISA is typically expressed as an annual percentage yield, but the interest itself is computed daily and credited back to the account monthly. This implies that the interest earned in your HISA is compounded, allowing your savings to grow at a faster pace. Suppose you deposit $10,000 in your HISA with a 1% interest rate and leave it untouched for a year. At the end of the year, you will have earned $100.50 in interest, bringing the total amount in your account to $10,100.50. Keep in mind, however, that interest rates are subject to change without notice, so it’s advisable to monitor your account regularly to track your actual earnings.
High-interest savings account investment:
While HISAs offer minimal risk as an investment option, their rate of return is typically lower than other investment alternatives. Thus, HISAs can serve as a useful component of your financial strategy, but they might not be sufficient for long-term savings objectives such as retirement.
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High-interest savings account taxes:
The interest earned on your HISA savings is treated as taxable income by the Canadian Revenue Agency, just like your regular earnings. You must disclose the interest earned when you file your tax return, which can be found in the T5 slip provided by your financial institution annually.
The tax rate applied to the interest earned in a high-interest savings account is the same as the rate applied to your other income.