With inflation and the increased cost of goods and services, many Canadians are wondering how to maximize savings and investments.
Financial planning and financial literacy are not just about saving and investing money. A solid financial foundation gives you confidence and peace of mind with the security, quality of life, and experiences it provides. Whether you want an emergency fund as a cushion for unexpected expenses or want to save for a vacation to your dream destination, you need financial planning and financial literacy to reach these goals.
There are several financial tools available to help you reach your goals. A high-interest savings account (HISA) is a great addition to your financial portfolio for short-term financial planning. Ever heard the phrase “make your money work for you”? That’s exactly what a high-interest savings account does—with a high-interest rate and no monthly fees!
Definition of a high-interest savings account
As the name suggests, a high-interest savings account offers a much higher interest rate than a regular savings account. A standard savings account may have an interest rate of up to 1% while a high-interest savings account may offer a much higher rate. In addition to the attractiveness of the higher interest rate, most HISAs have no monthly fees. You get a return on your savings just by depositing money into your account.
Money held in a HISA earns compound interest, which means you earn interest on the money you deposit into the account (called the principal balance) as well as any accumulated interest from previous periods. Interest can be compounded daily, monthly, quarterly, semi-annually, or annually depending on the account and the provider, and the compound frequency represents the number of times the accumulated interest is paid out or capitalized per year.
Compounding more frequently throughout the year increases interest earned on your deposits. The Neo High-Interest Savings account calculates interest daily based on your account’s total closing balance and pays out monthly, and therefore compounds monthly.
How are high-interest savings accounts different from other accounts?
You can use several different kinds of financial accounts for saving and investment goals. Let’s explore how these accounts differ from a high-interest savings account.
Chequing accounts
Chequing accounts are for everyday transactions, such as paying bills, paycheque direct deposits, and making purchases. Rather than saving and growing your money for different financial goals, like buying a car or paying university tuition, your chequing account is for daily necessities, like paying for gas and groceries. Any money you earn typically gets deposited into your chequing account first, before going toward your expenses or savings and investment accounts.
Guaranteed investment certificate
A guaranteed investment certificate (GIC) is a reliable way to grow your money without the risk of an investment account. You have a guaranteed rate of return over a fixed period and get your principal plus interest back at the end of the period. GICs are a great alternative or addition to a high-interest savings account to support different needs.
The difference between a high-interest savings account and a GIC is you have easy access to your funds in a HISA. When you buy a GIC, your money is locked in for the duration of your contract, which can be anywhere from a few months to years. There is a penalty for taking your money out before maturity.
Of course, there are several types of GICs such as cashable and non-cashable, with specific limitations and benefits. Before buying a GIC, make sure you understand the benefits and risks of this investment.
Tax-free saving accounts
Tax-free savings accounts (TFSAs) are another great alternative or complement to high-interest savings accounts. You can hold several products in a TFSA, such as individual stocks, mutual funds, options, and Exchange Traded Funds (ETFs). Your investments grow tax-free in a TFSA, and you aren’t taxed on withdrawals. In a HISA however, you will get taxed on the interest earned in the account.
Some institutions offer high-interest tax-free savings accounts, where the interest you earn is tax-sheltered however, TFSAs have annual contribution limits and rules around withdrawals and contribution room. On the other hand, there are no deposit limits on a HISA. You can put in as much or as little money as you want, and withdraw without penalty.
TFSAs are generally used for medium to long-term savings goals, as many of the investments you hold in the account take time to grow. HISAs can be great for both short-term and long-term goals, such as buying a nice purse at the end of the year or having an emergency fund.
Standard savings accounts
Standard and high-interest savings accounts are very similar, but you earn a much higher interest rate with a HISA. Some institutions offer a promotional or temporary high-interest rate in their standard savings account to attract customers. The Neo High-Interest Savings account has one of the highest interest rates in Canada², with 4.00% interest¹ earned on every dollar.
What should I consider when choosing a high-interest savings account?
You should consider several factors when choosing a HISA for your savings goals. The first is to ensure your funds are protected by the Canada Deposit Insurance Corporation (CDIC), which provides insurance on eligible deposits in case the financial institution fails.
Here are other things to think about when opening a HISA.
Interest rates
Not all institutions offer the same interest rates. Although HISAs have higher rates than standard savings accounts, some institutions may have higher HISA rates than others. Those with higher interest rates may have additional requirements, such as a minimum balance.
Neo offers one of the highest rates in Canada², with no minimum balance required. You can deposit as little as you want, or up to $200k into your Neo High-Interest Savings accounts and watch your funds grow risk-free.
Monthly fees
Neo doesn’t charge monthly fees on the Neo High-Interest Savings account. Every dollar in your HISA truly works for you to generate the most interest to grow your money quicker.
Accessibility
It’s easy to access the funds in your high-interest savings account. You can open open multiple Neo High-Interest savings accounts and instantly transfer funds between them for free. You can also transfer money between your HISA and other Neo accounts³, or an external account.
Accessibility is one of the best features of a high-interest savings account compared to other financial products. It gives you the flexibility to realign your accounts based on changing financial goals and puts you in control of where your money goes.
Tips for maximizing your interest earned
HISAs are great tools to maximize your interest-earning potential.
Review interest rates regularly
Interest rates change regularly, so it’s important to review them often. It ensures you get the best rate to help your money grow reliably and quickly. There are several resources online that compare interest rates from different institutions. These resources may also provide information like transaction and withdrawal fees and minimum balance requirements.
Set savings goals
Growing your money with specific savings goals in mind motivates you to save and ensures you stay on track to have the money when you need it. You can open multiple Neo High-Interest Savings accounts and customize the name and icon of each account to represent different savings goals.
You can also set targets for each account to indicate how much money you want to save in the account. Check your account regularly to see if you’re on track to meet these targets and whether you need to make larger or more frequent deposits to hit your goal.
Avoid common pitfalls
You can maximize savings by avoiding common pitfalls.
Withdrawal limits
Some HISAs have withdrawal limits that prevent you from taking out as much money as you want from your account or have a limited number of free withdrawals per month. They may also charge a fee if you withdraw money directly from your HISA. However, depending on the rules, you may be able to transfer as much money as you want from a HISA to your other accounts with the same provider.
Rates fluctuate
In general, interest rates on any financial product are subject to change without notice. It’s important to review interest rates regularly. Stay aware of fluctuating rates to ensure you maximize interest earnings and get the most out of your high-interest savings account.
Not great for long-term financial goals
While high-interest savings accounts earn more interest than standard accounts, you may not save enough using HISAs alone for more expensive things like a down payment. Savings accounts are typically used to hold money you need in the short term or want to access immediately, such as your emergency fund.
Complement your HISA with an investment account and other products to get the most growth for your short-, medium-, and long-term goals.
Ready to open a high-interest savings account?
Consider opening a Neo High-Interest Savings account if it fits within your financial picture. It offers a higher interest rate than standard savings accounts and has many benefits that other accounts may not have, such as no monthly fees or minimum balance.
Neo has one of the highest interest rates² compared to other HISAs in Canada, and it’s a great tool to help kickstart or complement your savings goals. You can open multiple accounts, set specific goals, track your progress, and easily access your money. The sooner you start, the more time compound interest can work in your favour to grow your money quickly and reliably.
Neo offers high-interest savings accounts for Canadians as young as 13 years old⁴. It’s a great option to teach your kids financial planning and responsibility and help them make savings goals. Whether they want to buy a new gaming console or go on a trip with their friends, they can use their Neo High-Interest Savings account to accomplish those goals.
Open your Neo High-Interest Savings account today and make your savings goals a reality.
¹ Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.
² Based on research of high-interest savings accounts, comparing and limited to: BMO, CIBC, Scotiabank, TD Bank, RBC, Simplii Financial, Desjardins, and Tangerine. Research conducted by Neo Financial and based on data taken from public websites on November 28, 2023. Research includes promotional offers with a term of 0-5 months.
³ Limitations apply to Quebec residents.
⁴ Account only available to Canadian residents. You must be at least 13 years of age if you reside outside of Quebec; if you reside in Quebec you must be at least 14 years of age.
