Regular vs high-interest savings accounts: explained

Hyder Owainati
by Hyder Owainati August 11, 2020 / No Comments

This post is sponsored by EQ Bank

We’re all familiar with the ordinary, run-of-the-mill savings account. 

It’s a safe place to store your money, earn incremental interest, and keep your savings an arm’s length away from your chequing account so you’re less likely to spend it on a whim.

But what about savings accounts that squeeze in a few extra words – like high-interest or high-yield? What separates these accounts from regular savings accounts, and do they come with a catch?

We break down the facts below.

What is a high-interest savings account?

Most of what you need to know about high-interest savings accounts is kind of obvious – it’s in their name. These accounts come with considerably above-average interest rates when compared to most regular savings accounts out there.

While there’s no strict definition or percent that classifies a savings account as high-interest, a good rule of thumb in today’s economy is the account should come with a rate that’s around ten-to-thirty times higher than the typical savings account from one of the big banks. 

Aside from the interest rate, high-interest savings accounts and regular savings accounts are fundamentally the same.

EQ Bank’s Savings Plus Account is a classic example of a high-interest savings account. It currently offers an annual interest rate of 1.70%1, which is well over the 0.01% to 0.05% you’ll earn on many regular savings accounts today. That’s a huge gap and it’s made even wider when also considering the interest you earn on these accounts is compounded monthly.

EQ Bank’s Savings Plus Account

Apply Now Button-small

    • 1.70% everyday interest2
    • No minimum balance
    • Free e-transfers
    • Cheap international money transfers

The math: High-interest savings account vs regular savings account

To put into perspective how the difference in interest rates can really add up, we’ve pitted EQ Bank’s Saving Plus Account against a regular savings account from a big bank and compared what happens on a deposit of $10,000 over a five-year period.

Year

EQ Bank’s Savings Plus Account (1.70%) Regular Savings Account (0.05%)

0

$10,000 $10,000

1

$10,171.33 $10,005.00

2

$10,345.60

$10,010.00

3

$10,522.85

$10,015.01

4 $10,703.14

$10,020.02

5 $10.866.52

$10,025.03

Total Interest $886.52

$25.03

Comparing the two accounts side-by-side sheds light on just how much more value a high-interest savings account can deliver. 

If you’re looking to park some cash aside while also keeping it accessible – as part of say an emergency fund or down payment for an upcoming home purchase – the benefit of high-interest accounts really adds up.

Fees and features of high-interest vs regular bank accounts

Considering high-interest savings accounts offer so much more earning potential, you might think they come with more strings attached than a regular savings account. But that’s not really the case.

Every bank and account are different, and in some cases, high-interest savings accounts can offer more perks and fewer restrictions. 

EQ Bank’s Savings Plus Account, for instance, has no minimum balance requirement and no monthly banking fees – which means there are no dormant account fees, no overdraft fees, and no fees on Interac e-Transfers® or transferring money back-and-forth between banks. EQ Bank’s joint account feature allows you to share access with up to three other people. Finally, EQ Bank even offers additional features not commonly found on savings accounts like the ability to send international money transfers or make bill payments online like you can normally do with a chequing account.

Before you open any type of account, make sure to dig into the details and read the terms and conditions to be in the know about potential fees.

EQ Bank’s Savings Plus Account

Apply Now Button-small

    • 1.70% everyday interest2
    • No minimum balance
    • Free e-transfers
    • Cheap international money transfers

Are high-interest savings accounts federally insured like regular savings accounts?

Whether or not your savings account is federally insured comes down to who you bank with and if they’re a member of the Canada Deposit Insurance Corporation (CDIC) – not if it’s a high-interest or regular savings account. 

If you open a high-interest savings account with a bank or credit union that is a member of CDIC, up to $100,000 of the money you deposit in your name will be federally insured automatically. Even if the banking system were to fail or your particular bank closed its doors, your high-interest savings account would be protected by the Government of Canada. 

Since funds at EQ Bank are eligible for CDIC coverage2, this means the money you put in the Savings Plus Account would be insured just the same as any regular savings account from a big bank. If you’re interested, you can check out a full list of federally insured banks on the CDIC website

High-interest accounts are usually offered by online-only banks

Typically, the most competitive high-interest savings accounts are offered by online-only banks – like EQ Bank – versus traditional brick-and-mortar institutions like the big banks. 

You may be wondering, how can these online banks afford to offer such high rates? 

It comes down to a few factors. For one, since online-only banks don’t manage physical bank branches, their cost of operations is much lower, and in turn, they pass on those savings directly to you. 

In place of physical branches, you’ll get access to a top-notch online banking experience along with the ability to speak with customer service reps over the phone or through online chat software. Considering about nine-in-ten Canadians use online banking, not having the ability to walk into a bank branch isn’t much of a sacrifice, particularly with a savings account where branch visits aren’t really needed.

Since most online-only banks also aren’t household names compared to the big five, they also rely on great rates to draw attention and attract new customers. Offering better rates is effectively their marketing strategy. 

The bottom line

With high-interest savings accounts offering rates that far eclipse those of regular savings accounts while also offering the same features (if not more), it’s really a no-brainer to ditch a regular savings account for one that comes with a higher interest rate.

1Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.

2Equitable Bank is a member of CDIC. EQ Bank is a trade name of Equitable Bank. Deposits made under EQ Bank and Equitable Bank are aggregately eligible for CDIC protection up to $100,000, per insured category, per depositor.


categories: Deposits
tags: