A Comprehensive Guide to High Interest Savings Account Interest Rates
A high-interest savings account is a great tool to help you reach your financial goals quickly. Whether building an emergency fund to weather a rainy day or budgeting for a wedding, you earn more compound interest than a traditional savings account.
You’ll likely find different interest rates when exploring high-interest savings accounts. Financial providers set their rates based on competition and economic conditions. It’s important to compare interest rates and find one that matches your preference. The interest rate determines how much interest you get in your high-interest savings account. The higher the interest rate on the high-interest savings account, the more interest you receive in your account.
In this guide, we explore the dynamics of high-interest savings account rates, factors influencing the rate, the differences between high-interest savings account and guaranteed investment certificate (GIC) rates, how to find the best rates, and the Canadian financial providers with the best rates.
Understanding the dynamics of high-interest savings account rates
High-interest savings accounts have many features, making them a powerful savings tool for Canadians. Two important dynamics to consider regarding high-interest savings account interest rates are compound interest and ongoing vs. promotional rates.
Compound interest
HISAs pay account holders compound interest. Compound interest means your earnings are based on not only your principal, but also the interest earned in your account from previous periods.
Higher compounding frequencies result in more interest in your account. The interest you earn during the compounding period gets deposited into your account, and you earn interest on the total deposits during the next period. Since your account balance grows every time you receive interest, your funds grow at an increasing rate.
Ongoing vs. promotional rates
An ongoing rate is the regular rate a financial provider offers its customers for holding money in an account. If an institution has an ongoing rate of 2%, you’ll consistently earn 2% interest on your funds.
The promotional rate is only valid during the promotional period. Once the promotion expires, you’ll earn interest at the ongoing rate. Let’s say a high-interest savings account offers a 5% promotional rate for three months, but their ongoing rate is much lower. You’ll earn at the higher interest rate during the promotional period and the regular rate after three months.
It’s important to distinguish between ongoing and promotional rates when comparing interest rates. It gives you a better estimate of how much interest your account will generate and whether you can reach your savings goals.
Factors influencing high-interest savings account rates in Canada
Financial institutions raise and decrease interest rates based on financial market conditions and competition. When the prime rates are low, financial institutions lower their interest rates on savings accounts since they can’t offer more interest in these accounts than they can earn on lending-based accounts.
Another factor influencing HISA rates is inflation. Inflation is the rate of price changes for goods and services. The government uses inflation as a measure of our economy’s growth. Inflation indicates the change in purchasing power of your money as goods and services become more expensive but your money stays the same.
The Bank of Canada changes interest rates to influence inflation based on economic conditions. When the rate of inflation starts to increase above the overnight target of 2%, the Bank will start to increase rates, which makes it more expensive to borrow money. Institutions use the policy interest rate from the Bank of Canada to set their prime rate for their products–both for saving and borrowing.
Institutions can change their interest rates anytime without notice based on market conditions and the Bank of Canada. Understanding the factors influencing HISA rates can give you a better idea of what rates you can expect in the market and whether you’re getting a good interest rate.
HISA interest rates vs. GIC rates
When you buy a GIC, you agree to lend money to the financial provider for a specified period. The institution pays you interest based on a predetermined interest rate. You get your principal and interest income at the end of the contract term.
Like high-interest savings accounts, the policy interest rate from the Bank of Canada influences GIC rates. When the policy rate increases, financial service providers increase the prime rate, which makes borrowing money more expensive. For savers, an increase in the prime rate can lead to higher rates on GICs and high-interest savings accounts.
GICs are fixed-term investments. They typically have higher interest rates than high-interest savings accounts in exchange for locking your money for a set period. It eliminates the temptation to access what you are trying to save the money for.
High-interest savings accounts and GICs are both great tools to help you build a strong financial future. When choosing between these two products, you should consider your situation. If you’re saving for an upcoming purchase, you may not be able to cash your GIC as easily as you could withdraw funds from a high-interest savings account. Buying a shorter GIC contract can be an option, but you'll likely limit your investment earnings.
A high-interest savings account can help you achieve short-term financial goals without the restrictions of a GIC. You can earn at a higher interest rate than standard savings accounts, and compound interest helps your funds grow quickly. High-interest savings accounts give you better access to your funds and make withdrawals anytime.
Navigating the market: Finding the best high-interest savings rates
Market conditions change all the time, and high-interest savings rates can fluctuate without notice. The best way to navigate the market and find the best interest rates is to compare different financial providers.
Each institution sets its rate based on supply and demand, economic influences, and competitors. Comparing different interest rates gives you a better understanding of the average interest rate for savings accounts and what you can expect from a good rate.
When comparing savings accounts, you may encounter terms like tiered rates. Tiered interest rates mean you earn different rates based on how much money is in your account. You may earn 0.4% interest on balances between $0 and $10,000 and 1% interest on balances above $10,000. A balance requirement limits how quickly your money can grow.
Promotional offers also limit how much your funds grow in a high-interest savings account. After the promotion expires, the regular interest rate is typically much lower.
Which Canadian financial provider has the highest interest rate on savings accounts?
If you compare savings accounts from different financial providers, you may see interest rates up to 6%¹. As the Bank of Canada continues to hold the policy interest rate higher than the long-term average, many institutions offer higher rates or savings accounts.
It’s important to distinguish between promotional and ongoing rates to get a more accurate estimate of how much interest your account can earn in the long term. You should look for savings accounts with ongoing high-interest rates if you want to grow your money faster.
The Neo High-Interest Savings account has one of the highest interest rates among Canadian financial providers¹. You’ll earn a stable interest rate of 4%² in your account on existing and new deposits. It gives you better earning potential to accelerate your interest income and reach your savings goals faster.
Open a Neo High-Interest Savings account today
Opening a Neo High-Interest Savings account is easy because saving money should be a hassle-free experience. In only a few minutes, you can apply for a savings account and kickstart your savings journey.
Whether you’re saving for upcoming purchases or want an emergency fund for unplanned expenses, this is a great place to stash away your money. You earn 4% interest² on every dollar in your account to make your savings goals a reality sooner!
Saving is essential for a strong financial foundation, and we want every dollar you deposit to work hard to maximize your savings. That’s why there are no minimum balances or monthly fees. You can deposit as little or as much money into your account and watch it grow with minimal risks.
Our smart savings tools help you create targets that match your goals and monitor your progress to ensure you’re on track to meet them. You can open multiple accounts tailored to different purposes to help you stay organized and make your savings journey easier. We also have resources to support Canadian youth because it’s never too early to start saving.
Ready to start saving? Learn more about the Neo High-Interest Savings account today, and let us help you achieve your savings goals faster.
¹ 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 October 17, 2023. Research excludes welcome offers.
² Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.
