Many Canadians don’t think twice about price comparing cell phone plans, car insurance, or mortgage rates, but few take the time to consider whether they should shop around for a better savings account rate – this is a big mistake.
While it might seem inconsequential, a higher interest rate on your savings account is the easiest way to make your money work for you. The best part is, there’s no downside to switching to a higher interest savings account. Here are five compelling reasons to make the switch to a high-interest savings account.
The first reason to move to a higher interest savings account is that there is no risk in doing so. Opening new savings accounts doesn’t negatively impact your credit score, and you can usually sign up online in just a few minutes. Finding the best high-interest savings accounts is easy thanks to the many comparison websites available, so moving your money and getting it to work for you can be done before you even finish your morning coffee.
If you’re doing research and you determine that the savings account with the highest interest rate belongs to a bank you haven’t done business with before, don’t let that stop you from making the switch. While all banks in Canada are heavily regulated and therefore very stable, there are several ways you can determine for yourself if the organization is in good standing. The easiest way to determine this is to check if the bank is a member of the Canada Deposit Insurance Corporation (CDIC). The CDIC is a federal Crown corporation that insures your deposits up to a limit of $100,000. As long as the bank in question is on the CDIC’s membership list, there’s no risk to your deposit.
While your money might earn more in a guaranteed investment certificate (GIC) the downside of a GIC is that the money is locked in for between 30 days and 10 years. This period is known as the term, and during the GIC’s term, your money is not available to you.
While that may be a good option for money that you don’t need anytime soon, for money that needs to be accessible, such as an emergency fund or travel fund, GICs aren’t a good option. In those cases, a high-interest savings account is the better choice.
If you need access to your money quickly and easily, then you’ll probably also want all of that money there when you go to withdraw it – not just a portion. If this is the case, a low-risk high-interest savings account is the right choice because you’ll earn a guaranteed rate of return. You won’t earn a guaranteed rate of return if you invest that money in stocks, bonds, or mutual funds. In fact, you could temporarily lose money due to normal market fluctuations. Generally speaking, most personal finance experts agree that if you have money that you’ll need access to within five years, your best choice is to put your money in a high-interest savings account so it will be there when you need it.
Keeps pace with inflation
We’ve established that keeping your money in a savings account can be beneficial over other products like GICs, mutual funds, stocks, and bonds, but these features are true of any savings account offered by any banking institution in Canada. What makes high-interest savings accounts interesting, is that the interest rate offered is high enough to keep pace with inflation. Right now, inflation is fairly low, but the Bank of Canada’s mid-point target is 2%, with a target band of 1% to 3%. Most high-interest savings accounts offer an interest rate in the range of 1.5% to 2.30%, so parking your money in a high-interest savings account will allow it to grow in pace with inflation.
Possible sign-up bonuses
Finally, like signing up for a new credit card, some institutions offer incentives and sign-up bonuses for new customers. For example, the Tangerine savings account offers a 1% interest rate, but if you sign up as a new client for both a savings account and a chequing account, you’ll earn an industry best 2.40% on your money for the first six months. You’ll also earn a $100 bonus if you switch your payroll direct deposits or pre-authorized payments over to Tangerine.
In the age of low interest rates, high-interest savings accounts haven’t gotten the attention they deserve from the financial media, but we think it’s worth shopping around for the best high-interest savings account to make your money work just a little bit harder.
Ratehub.ca empowers Canadians to search smarter and save money by comparing mortgage rates, credit cards, high-interest savings accounts, chequing accounts, and insurance.