Interest Rates Earned on the Account
Scout around for banks that offer you the highest interest rates on savings accounts. It will interest you to know that many banks provide interest rates of more than 2%. This is an important advantage because the possible earnings can help you keep pace with the current inflation rates in Canada.
You’ll build assured wealth in a shorter time frame. At the same time, make sure that the interest rate is not just valid for an introductory period as a promotional offer. Check if the bank will drop the interest rate after a few months.
Most Popular Savings Account
Accessing Your Funds
Typically, savings accounts don’t permit transactions like making bill payments or transferring funds when needed. But, in recent times, more banks are offering greater accessibility and flexibility. You might get the benefits of a chequing account combined into the savings account. Being able to access your funds and make withdrawals should be high on your list of priorities. Check with the bank for the number of transactions allowed and the charges for each.
Making Transactions and Withdrawals
Even though you’ll use the savings account for future expenses, choose a savings account that permits easy withdrawal with the minimum fees. For instance, check with the bank for the charges you’ll pay in case you withdraw cash or conduct point-of-sale transactions. Many banks allow you to make a fixed number or an unlimited number of transactions or e-transfers without incurring any fee. Accordingly, choose the bank that offers the terms that best match your spending habits.
Taxes Incurred on the Earnings from HISAs
An important factor to keep in mind when signing up for a high-interest savings account is that the interest you earn is taxable and there is no limit on the amount of funds you can deposit. HISAs fall into the non-registered accounts unlike other savings options like stocks, Guaranteed Investment Certificates (GIC), Registered Retirement Savings Plan (RRSP), and Tax-Free Savings Account (TFSA). Since the interest earned is income, you’ll pay the applicable tax according to the yearly income bracket. Your bank will send you a year-end tax form, much like the form you receive from an employer.
If you would prefer a savings account that does not incur taxes, consider the Tax-Free Savings Account (TFSA). The earnings from this account will not incur any tax. Further, you can avail of benefits such as an increased limit on the contribution limit for each year that is reset at the end of the year. Alternatively, go for the Registered Retirement Savings Plan (RRSP) which again, does not carry any taxes. However, since this is a fund specifically designed for retirement, you’ll pay taxes on making withdrawals.
Choosing Between a Regular Savings Account and High-Interest Savings Account
When considering your options, you’ll learn that regular savings accounts earn a lower rate of interest of around 1.05% or lower. However, the HISAs provide interest rates of 2% or higher. And, that makes HISAs a more attractive savings option. At the same time, you’ll want to compare the terms and conditions and choose an instrument that works well for you. Also, compare the features of the savings accounts offered by different banks and credit unions.
The folks at offerhub.ca have listings of side-by-side options that you can view and compare. Make your choice after weighing the different features of the options available out there.