Is the bank using your money without giving you a little something in return? That’s the reality if you’re letting your savings sit in a chequing account.
When you deposit money with a bank, they loan this money out and earn interest on your funds. This is how banks make money, but you deserve a piece of the profits too.
The simple solution? High Interest Savings Accounts. Seriously, saving money doesn’t get much simpler than this. High Interest Savings Accounts (HISAs) offer you the same safety and accessibility of chequing accounts, but earn a lot more interest than a typical account.
If I’ve piqued your interest, here are six tips so you can get the most out of a HISA:
- Stop leaving all of your savings in a chequing account!
I’ve said it once and I’ll say it again: if you’ve got some extra savings and you’re just letting it sit in a chequing account, you’re leaving money on the table. A HISA is a simple and flexible way to earn a return on your savings.
- Always pay off debt first
That being said, you should always pay off debt first. HISAs (and most investments) won’t make up for the amount of interest you’ll pay on things like credit card debt and student loans. General rule: pay off your debts and then invest.
- Shop around
When you’re ready to open a HISA, don’t just open an account with your existing bank. Another bank may have a better rate, so it’s always a good idea shop around and compare all of the options.
- Don’t be fooled by teaser rates
When comparing rates, don’t be fooled by promotional teaser rates. Some banks will advertise higher interest rates in order to convince savers to switch over from their current bank. These offers can be enticing, but you have to be careful. Promotions usually only last for 3–6 months, after which the interest rate drops to a lower rate. When evaluating these offers it’s important to find out what interest rate you’ll receive after the introductory period. A good way to compare these options with other accounts is to calculate first-year return: the return you’ll receive over the course of the entire year.
- Watch out for fees
HISAs typically include a limited number of transactions (deposits, withdrawals, bill payments, etc.) with your account each month. Transaction fees can really add up if you exceed these limits, and that’s why HISAs are not well-suited to day-to-day use. Always consider how much access you’ll need to your funds before opening a HISA, and keep some cash in a chequing account for daily transactions.
- Don’t forget about tax!
Finally, don’t forget about the tax you’ll have to pay on HISA income. Make use of available tax shelters—TFSAs or RRSPs—to allow your savings to grow tax-free.
If you were looking to step up your savings game, I hope this gave you some easy tips to get started. High-Interest Savings Accounts may not be the most sophisticated investment strategy, but they’re a great way to get your feet wet in the personal finance world and get more from your hard-earned dollars.
Are you guilty of leaving too much in your chequing account? How do you plan on stepping up your savings game? Let me know in the comments or tweet us @RateHub!
Flickr: Rob Pongsajapan