Learn everything you need to know about savings accounts.
What is special about savings accounts?
Savings accounts are not just accounts for storing additional funds. They have distinct features different to chequing accounts. If one understands how savings accounts work, their benefits are obvious. Savings accounts accumulate interest over time, allowing the investor’s money to grow at a gradual pace.
How does interest work with savings accounts?
With interest, your savings account will grow over time. The average for savings account interest in Canada is roughly 1.5%, frequently closer to 2% than to 1%. Over time—typically each month—savings accounts will receive additional funds based on the balance of the account. That additional money is calculated by the interest rate. For example, if you open a savings account with $200 and then add $100 to it for 12 months, you will end up with $1400 in your name at the end of year (without interest). Then, the bank will calculate the interest. If the bank has a 1.5% interest rate for your savings account, it will give you an additional $21 (1.5% of $1400) on the month that your savings account hits $1400 Then, the bank will calculate the interest. If the bank has a 1.5% interest rate for your savings account, it will give you an additional twenty-one dollars (1.5% of $1400) on the month that your savings account hits $1400.
What about taxes on savings accounts?
Sometimes you can obtain a TFSA (Tax-Free Savings Account), but that is not always the case. In some instances, your savings account’s interest will be taxed by a certain percentage. On average, the tax is only about a tenth of a percent. If the account in the above example were taxed by .1% on the $21 increase, you would lose approximately two cents. Overtime, however, this number would grow. Also, the tax rate on your savings account might increase based on how much money you have.
Final thoughts on savings accounts
Opening a savings account is a simple and low-risk way to allow your money to grow over time. Most banks will allow you to access your savings account at any time, and several banks offer TFSA (Tax-Free Savings Account) options to their clients. A savings account is also a good way to aid in managing your own money, as it allows you to have a special and safe place to store your money for the future.
Best savings accounts to choose from
Here are examples of some of the best savings accounts: