We do it for our electronics, vehicles, and even mortgages – but are enough people shopping around for the best possible savings account? Everyone knows spending time researching expensive purchases will save money, but it’s just as important to ensure our accounts are making us as much money as possible as well.
Looking for a high-interest savings account?
I was recently on the phone with a representative for the big bank that handles most of my accounts. The rep suggested I move some money out of one account into a new, high interest savings account.
What’s the interest rate? I inquired.
The rep replied: “0.9% if you maintain a balance of $10,000.”
Of course, as a writer for a personal finance blog, I know there are much better options available – but would the average banking client realize that?
The experience really drove home the importance of shopping around for the best savings account interest rate.
Various Types of Savings Accounts
There are several different types of savings accounts available to Canadians, and each has their own intended purpose. Depending on your circumstances, you can choose one of the following.
High interest savings accounts provide a higher rate of interest than traditional savings accounts offered by many banking institutions. Some smaller banks have recently made waves in the market by introducing high interest savings accounts that offered interest rates at 3% — an unheard of rate of return just a few years ago.
However, the best high interest savings account rates today are closer to 2%. It’s also important to note that you’re required to pay income tax on money earned in a non-registered high interest savings account.
Tax Free Savings Accounts are actually a type of investment account that allows Canadians to save their money tax-free. TFSAs are only available to those aged 18 and over, but they function great as a retirement fund since they can house various investment products and all interest earned is tax-free.
Youth and seniorsavings accounts are two different account types that are offered to young and older Canadians respectively. Both may offer special incentives or reduced fees.
Why You Should Shop Around for the Right Account
Once you’ve chosen the type of savings account you want, next comes the daunting task of picking the exact account that best suits your needs. For the purpose of this comparison, we’ll take a look at high interest savings accounts currently being offered in Canada.
There are several different banking institutions you can choose from; the big banks (such as TD Bank, RBC, and the like), smaller banks (EQ Bank, Oaken Financial, and others), and various trust companies and credit unions all offer savings account options.
While it may seem tempting to stick with the institution with which you’ve always done your banking, you will certainly benefit from shopping around. And your new institution will work with you to transfer funds over from your previous account(s).
Let’s take a look at the numbers.
Remember the bank I mentioned that offered a 0.9% return? How does that compare to some other options currently available in the market?
For this exercise, we’ll assume a balance of $10,000 that’s being saved in a high interest savings account. If you were to leave that sum in the account for an entire year, without adding to or subtracting from it, you will have earned a first-year return of $90.
Admittedly, that’s not great. But let’s take a look at some other offerings currently available.
We’ve collected some of the top savings accounts currently offered in Canada. Rates range from an abysmal (0%) to an impressive (2.3%).
The Bank of Montreal offers a Savings Builder Account that offers 1.4%, which would yield a yearly return of $140.
Oaken Financial and RBC, meanwhile, offer accounts with rates of 1.5%; either would earn you a total of $150 in interest a year from now.
Another high interest savings account currently being offered is Alterna Bank’s High Interest eSavings account, which offers an interest rate of 2.05%. That would mean an annual return of $205.
Finally, EQ Bank is offering what is currently the best high interest savings account in Canada. Its Savings Plus Account offers an interest rate of 2.30% for a return of $230.
While interest rate may be the most important consideration, there are some other account details that should factor into your choice. For example: Are there additional transaction fees? Unlimited transfers? What about e-transfers?
Another thing to be wary of is promotional rates. Some banking institutions will offer promo rates that last a short period. For example, Simplii Financial is currently offering a 3% interest rate for its High Interest Savings Account. However, that rate will be slashed to 1% after Feb. 28, 2018, meaning your return for the year will be a total of $118.
So if you’re interested in opening a new savings account – or have now realized there are better options than the one you currently have – remember it (literally) pays to shop around for the best account.