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Banking: What Is a Savings Account in Canada?

Vincent Morin / Sep 12, 2024
Personal Finance Banking: What Is a Savings Account in Canada?
To the point Want to put some money aside? Then you need to open a savings account. But which one should you choose?

When you have a small cushion of money, you need to make sure you put it in the best savings account. In Canada, there are several types of savings accounts, each designed to meet specific needs. In this guide, we explore the different savings accounts, interest rates, fees and deposit insurance coverage. Then, we share the best high-interest savings accounts in Canada.

Types of Savings Accounts in Canada

You may be surprised to learn that there are many different types of savings accounts in Canada. Here’s an overview of the most popular kinds of savings accounts.

1. Savings Account

A regular savings account is often the first savings account a person opens, and is often linked to the opening of a chequing account. It allows you to put money aside, often for your short-term financial goals or for your emergency fund. The interest rate on a regular savings account is generally quite low. With the arrival of high-interest savings accounts, regular savings accounts are no longer as popular as they once were.

2. High-Interest Savings Account (HISA)

Do you want to earn more interest with your money? If so, you’ll want to take a look at a high-interest savings account. As mentioned earlier, regular savings accounts earn you next to nothing. But high-interest savings accounts have, as the name suggests, a higher interest rate than regular savings accounts.

In some banks, these interest rates are very low. However, some other banks and financial institutions offer higher rates. In general, you’ll find these HISAs at neobanks and online banks.

Neobanks are regulated financial institutions that exist solely online, without physical bank branches. A neobank’s lower overheads enable it to offer a higher interest rate on savings accounts. Neobanks often offer rather limited services, compared with online banks, which generally offer the same services as a traditional bank.

Here are some of the best high-interest savings accounts available in Canada:

3. Tax-Free Savings Account (TFSA)

The Tax-Free Savings Account(TFSA) is a savings account that allows Canadians aged 18 and over to contribute money, generate income and make withdrawals tax-free.
This savings account was introduced by the Government of Canada in 2009.
The annual contribution limit varies from year to year.
In 2024, the contribution room is $7,000 and the lifetime limit is $95,000 (if you were 18 or older in 2009).

What makes it so attractive is that investment income, such as capital gains, dividends and interest income, is not taxed, even on withdrawal.

Despite its name, the TFSA is more than just a savings vehicle.
In fact, it’s a savings plan that you can use to invest in stocks, exchange-traded funds (ETFs) or other types of financial products.
These financial products are generally available through an online brokerage platform such as Questrade, Wealthsimple Trade, Qtrade Investissement Direct or CIBC Investor’s Edge.

4. First Home Savings Account (FHSA)

The First Home Savings Account (FHSA) was introduced in Canada in 2023 to help Canadians enter the real estate market. It allows tax-sheltered savings, tax-deductible contributions (like RRSPs) and tax-free withdrawals (like TFSAs).
As with other registered accounts in Canada, limits and conditions apply.

As with the TFSA, the FHSA is not limited to savings. You can use it to invest in many types of financial products, such as shares in publicly-traded companies.

5. Youth Savings Account

Do you want to help your child get off to a good start when it comes to saving? Then consider opening a youth savings account. With their first savings account, your children can have their own savings account, for example, to deposit pocket money. With a youth savings account, the parent is the joint account holder until the child turns 18.

6. Savings Account for Seniors

If you’re a senior citizen, you’ll want to take advantage of a savings account for seniors. A savings account for seniors may offer certain advantages. For example, some savings accounts for seniors may offer lower monthly fees or free Interac transfer transactions. This is the case with the CIBC Smart™ for Seniors. Otherwise, check with your financial institution to see what’s available.

7. Retirement Savings Account

The Registered Retirement Savings Plan(RRSP) is a registered savings account that allows Canadians to save for their retirement. RRSP contributions are eligible for a tax refund. But they can also be used to access or increase the amounts received from social programs such as child allowances and the Guaranteed Income Supplement (GIS). Income generated in the RRSP is tax-free as long as the funds remain in the plan. However, RRSP (or RRIF) withdrawals are taxable.

Interesting fact: RRSPs can also be used to buy a first home (HBP – Home Buyers’ Plan) or to go back to school (LLP – Lifelong Learning Plan).

8. Money Market Account

A money market account is a bank account with an interest rate based on the money market. They function like regular savings accounts, but their interest rates fluctuate with the market. In some cases, there are certain conditions to be met in order to benefit from this type of account, such as a deposit or minimum balance requirement. Interest on money market accounts is calculated daily and compounded monthly.

A money market account is an excellent idea if you intend to hold a large amount of cash over an unspecified period of time. Note that rates are subject to change at any time, without notice. Also, check carefully for management fees, administration charges and withdrawal conditions.

9. Certificate of Deposit (CD)

If you don’t intend to use your cash for a while, you’ll want to take advantage of a certain type of savings account, called a certificate of deposit (CD). With a CD, you deposit a fixed sum of money that earns you a fixed rate of interest (usually higher than a regular savings account) over a set period of time. The term of a CD can vary from a few days to several years. CDs often require a minimum deposit to open the account. To withdraw funds from a CD before the scheduled maturity date, you’ll have to pay early withdrawal penalties. This will reduce the interest earned on this type of account.

10. Guaranteed Investment Certificate (GIC)

A Guaranteed Investment Certificate (GIC) is a guaranteed investment. It is very similar to a certificate of deposit (CD), but the main difference is that the GIC generally has a longer investment period. With a GIC, you can invest an amount of money for a pre-determined period at a pre-determined interest rate. On the maturity date of your investment, you receive back the amount you originally invested. In the meantime, you receive annual interest payments. Generally, the interest rate is higher for longer-term GICs.

Savings Account Interest Rate

When you have a savings account, it’s important to know your interest rate. The interest rate tells you how much you will receive each month on your savings. The interest rate on your savings account is expressed as an annual percentage. For example, if you have $5,000 in a high-interest savings account with an annual interest rate of 4%, your account will receive 0.333% per month, or about $16.67 per month.

Savings Account Fees

Many savings accounts come with fees. Here are two of the most common fees you’ll find on a savings account: transaction fees and monthly fees. However, note that savings accounts from neobanks and online banks generally have no monthly fees and no minimum balance requirement. In addition to offering free transactions.

1. Transaction Fees

Some banks charge transaction fees on your savings account. For example, if you withdraw money from your savings account at an ATM, you may be charged a transaction fee. The same applies to Interac transfers or debit transactions (in the case of hybrid accounts, which combine the advantages of a chequing account and a savings account). Some banks allow you to make a few free transactions per month. Others offer savings accounts with no transaction fees. Take the time to check your financial institution’s terms and conditions regarding transaction fees on your savings account.

2. Monthly Fee

Some savings accounts have a monthly fee. Sometimes these monthly fees are waived or refunded if you maintain a certain balance in your savings account during the month. Take the time to check your bank’s terms and conditions regarding monthly charges on your savings account.

Deposit Insurance

Deposits in Canadian bank savings accounts are protected by the Canada Deposit Insurance Corporation(CDIC). CDIC covers your savings account for up to $100,000 in the event of bank failure. If you have more than $100,000 in a savings account, you may want to consider opening a second savings account at another financial institution. However, you should be aware that bank failures are sporadic these days, as financial instructions have strict risk controls in place.

You don’t need to apply for or pay for deposit insurance, because CDIC automatically insures your insurable deposits.

Deposit insurance protects the following types of deposits:

  • Chequing Accounts
  • Savings Accounts
  • Guaranteed Investment Certificates (GICs)
  • Term deposits
  • Foreign currency accounts (e.g. U.S. dollar accounts)

Deposit insurance does not cover the following types of deposits:

In the specific case of credit unions and trust companies provincially regulated, deposits are instead protected by provincial insurers. For example, the Financial Services Regulatory Authority of Ontario (FSRA) and the Autorité des marchés financiers (AMF) in Quebec. For a complete list of provincial deposit insurers, click here.

Online Savings Account

Savings accounts are offered by both traditional and online banks. Often, the best interest rates are offered by online banks, but this is not always the case. Savings accounts from both traditional and online banks are protected by the Canada Deposit Insurance Corporation (CDIC), or by the provincial deposit insurer in the case of credit unions and trust companies provincially regulated.

Bottom Line

In short, a savings account allows you to deposit your savings, earn interest and have easy access to your cash. In some cases, you may benefit from a higher interest rate than others (often with online banks). Take the time to compare the savings accounts offered by Canadian financial institutions. That’s how you’ll find the savings account that best suits your needs… and get the most out of your Canadian savings account.

What is a savings account?

A savings account allows you to set money aside and earn interest. Deposits in savings accounts are protected by CDIC, up to a maximum of $100,000 per account.

What's the difference between a current account and a savings account?

A current account, known as a chequing account, is a bank account for your day-to-day transactions, such as deposits, debit transactions, pre-authorized payments and withdrawals. A savings account is used for saving and earning interest.

Which savings account pays the highest interest?

There are several types of savings account, and interest rates vary constantly. However, interest rates on high-interest savings accounts are higher than on regular savings accounts.

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Vincent Morin
Vincent Morin
My name is Vincent and I've been a stay-at-home parent to two young boys since achieving financial independence in 2021 (FIRE). Previously, I worked for 12 years in financial technology for a major US investment bank (G-SIB). I'm passionate about personal finance, stock market investing, reading, writing, cycling and gardening. I'm also the founder of Retraite 101, a personal finance blog followed by over 20,000 people on social networks and quoted in several media, blogs and finance books. Despite early retirement, I continue to write about personal finance to share my passion with Quebecers and motivate them to take charge of their finances.

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