Types of savings accounts in Canada

A savings account is a reliable place to stash money for your future. Whether you’re planning to grow your family, buy a house, or make a few expensive purchases, financial planning ensures you have enough money to make these goals a reality.

Financial institutions offer different types of savings accounts that can grow your money and support your short-, medium-, and long-term financial goals, like an emergency fund or a retirement fund.

It’s important to differentiate between different types of savings accounts in Canada and understand how they can support your goals. Consider a combination of several accounts since strong financial responsibility includes expenses, savings, and investments for different purposes and timelines.

If you’re looking to open a savings account but don't know where to start, here’s a rundown of different types of savings accounts in Canada.

Four types of savings accounts to consider

You can open registered and non-registered savings accounts to save and invest your money. Each account can have restrictions, fees, and features that make them more attractive for specific financial goals.

There are a few questions you should ask when comparing savings accounts:

Are there minimum balance requirements or fees?
Are my funds insured?
Can I earn interest or investment income?
Will I get taxed?
Can I withdraw money at any time?
Are there perks and advantages?
Does this account fit into my financial picture?

Keeping these questions in mind, you can conduct more thorough research and find a savings account that better fits your needs.

Let’s look at four types of savings accounts and their purposes.

Traditional savings accounts

Traditional savings accounts are great for people who save money without needing to earn a lot of compound interest. You can open one with a bank, credit union, or other financial services provider.

While you won’t earn as much interest as other savings accounts, you have instant access to your funds and no or low minimum balance requirements. You may get penalties for making transactions using your savings account or transferring funds to another institution.

The Canadian Deposit Insurance Corporation (CDIC) insures eligible deposits in Canadian or foreign currency in select chequing accounts, saving accounts, guaranteed investment certificates (GICs), and other term deposits. For eligible deposits, the CDIC covers up to $100,000 per insured category, per depositor. It’s easy to open an account at a branch or online and earn slow but steady interest income each month. Check with your financial services provider to see if your deposits would be eligible.

High-interest savings account

A high-interest savings account (HISA) is similar to a traditional savings account, but you get a higher interest rate. It’s great for people who want a more competitive rate while minimizing fees and risks associated with investing and other accounts.

You can find high-interest savings accounts mostly at online financial providers. Since branchless institutions have lower operating costs, they can offer higher interest rates than most traditional providers. Many HISAs don't have minimum balance requirements or monthly fees.

A HISA is an attractive choice for many people because of its higher interest income potential, security, accessibility, and security.

Money market funds

Money market funds are a type of mutual fund with a low investment risk. These funds invest in short-term government and corporate debt securities to preserve capital and provide steady returns using smaller investment amounts.

You can access the cash in a money market fund when you need it, which is great for short-term goals. You can hold treasury bills, government bonds, certificates of deposit, and commercial paper. However, money market funds may have a minimum balance or initial investment requirements and carry no guarantee of principal.

Money market funds may have slightly higher interest rates than high-interest savings accounts, and you can earn dividends, but certain money market funds may lock your funds in for up to a year. Since money market funds are mutual funds, you pay management expense fees, which differ based on your investment in the fund.

Guaranteed investment certificates

Guaranteed investment certificates (GICs) are great for people who want competitive rates and don’t need to access their money immediately. They’re issued by various financial services providers and can have higher interest rates than HISAs.

GICs offer a guaranteed rate of return throughout the contract. When the GIC reaches its maturity date, you get your principal and the interest earned based on the specified rate in your contract. You can withdraw your savings or re-invest in another GIC.

GIC terms can range anywhere from a few months to years. The contract locks your funds until the term is over, and there are early withdrawal penalties. With a cashable GIC, you can access your cash at any time at a predetermined rate, but you’ll lose the growth potential of your funds. A cashable GIC gives you the flexibility of withdrawing your funds before the contract matures at an early cashing rate. A non-cashable GIC cannot be cashed in before the maturity date.

Specialized savings accounts for unique goals

You can open specialized savings accounts online or by visiting a branch. These accounts are designed for specific purposes to help create a strong financial portfolio. They include tax-free savings accounts (TFSAs), registered retirement savings plans (RRSPs), first home savings accounts (FHSAs), and student savings accounts.

Specialized savings accounts offer perks to help you reach unique goals. The FHSA can come in handy when you buy your first home, an RRSP is a popular retirement savings account, and a TFSA helps you grow your investments and savings tax-free. You can hold cash and different investment products in these accounts, such as stocks, bonds, mutual funds, Exchange Traded Funds (ETFs), options, and GICs.

Many of these accounts have eligibility criteria. For example, you can only open an RRSP if you earn income and file taxes in Canada, and the FHSA is for Canadians between the ages of 18 and 71 who are first-time home buyers. There are also yearly contribution limits, and you will be charged penalties if you go over the limit.

Comparing high-interest savings options

If you’re looking for high-interest rates, there are many options to consider.

A high-interest savings account is popular because you get an above-average interest rate with low risk. A HISA provides a nice balance of security, accessibility, and liquidity while guaranteeing a better rate than standard savings accounts.

A HISA is a great option for emergency savings and any savings goals where you plan to withdraw the money within five years. You earn compound interest on your deposits, providing guaranteed growth without the restrictions and risks of many other accounts.

Financial service providers set their interest rates based on several factors, including the Bank of Canada’s prime interest rate.

Here are some high-interest savings options currently available as of December 18, 2023¹.

Neo High-Interest Savings account: 4.00%² on every dollar, and this is not a promotional rate
Simplii Financial High-Interest Savings account: 6.00% promotional rate, and 0.40% to 5.50% regular interest rate depending on the account balance
Tangerine Savings account: 6.00% promotional rate, 0.70% regular rate
RBC High-Interest eSavings account: 5.50% promotional rate, 1.70% regular rate
Manulife Bank Advantage account: 5.25% promotional rate, 2.85% regular rate
KOHO Spending and Savings account: up to 5.00% based on the selected subscription plan
Motive Savvy Savings account: 4.10% up to $5,000,000 and 0.50% for balances over $5,000,000

As you can see, many high-interest savings options have a promotional high-interest rate that switches to a lower interest rate after the promotional period ends.

The Neo High-Interest Savings account continuously offers new and existing customers one of the highest interest rates in Canada on every dollar in their account1. You can open multiple accounts for different savings goals and track your earnings in the Neo app.

Is a TFSA better than a high-interest savings account?

It’s hard to compare a TFSA and a high-interest savings account without understanding your unique financial goals. You can use these accounts in similar ways, but they have features that make them more suitable for certain things.

When deciding between a TFSA and a HISA, it’s important to consider what you want to achieve and how it fits into your financial plan. You can assess your current income, expenses, savings, and debt to determine whether you want to keep your savings in cash or invest your money—or both.

You should also consider your risk tolerance and time horizon. Do you need the money next year or 10 years from now? You may get better investment results if you keep your money in a TFSA for a long period, whereas you can earn interest any time you deposit money into a HISA.

If your goal is to take advantage of tax-sheltered investment income and you won’t touch the funds for a longer period of time, a TFSA can be a great choice. You can purchase different investment products including mutual funds, stocks, and ETFs. Your funds have time to weather the ups and downs of market changes.

If your goal is to meet short-term financial goals and set aside money for a rainy day, a high-interest savings account may be a better option. While you may not get as much growth potential, you get a lot more security and accessibility.

You can always use a tax-free savings account as your savings account and hold cash or low-risk products like GICs. However, many of these products generate longer-term wealth and aren’t as accessible or liquid as your funds in a HISA. You have yearly contribution limits for the TFSA, which becomes available to you at the beginning of the year.

Is a GIC better than a high-interest savings account?

Again, it depends on your time horizon, what you’re saving for, and how easily you want to be able to access your money. Both a GIC and a high-interest savings account can fit into your overall financial profile, but they have different features and purposes.

GICs are secured investments where your funds are locked in for a period ranging from 30 days to several years. You won’t be taking full advantage of a guaranteed investment certificate if you take your cashable GIC out before it matures, and you’ll have to pay early withdrawal fees for a non-cashable GIC.

If you’re using a GIC as a short-term savings tool, some people like to buy multiple GICs with different maturity dates. It gives you more flexibility to access your funds if needed. However, if your goal is short-term savings, a high-interest savings account may be a better option.

With a high-interest savings account, you have instant access to your funds at any time with no penalties or restrictions. If you find yourself in an emergency, you can withdraw funds online or in person depending on the institution.

It’s important to compare GICs with HISAs based on your financial situation to determine which account is the better choice for you. Since a balanced financial plan consists of diverse accounts and assets, you can have both GICs and HISAs for different reasons.

Start saving with a Neo High-Interest Savings account

It only takes a few minutes to open a Neo High-Interest Savings account to kick-start your savings journey and create a strong financial foundation for life. There’s no minimum balance required or monthly fees. Every dollar deposited works hard to earn you compound interest, which gives you accelerated growth each month.

Canadians over the age of 13³ can open a Neo High-Interest Savings account. We offer financial tools to track your spending habits and stay on top of your savings. Easily access your funds and make unlimited transfers between your Neo accounts⁴ to re-adjust your finances or make transactions when needed.

Learn more about the Neo High-Interest Savings account to get started today.

¹ Based on research of high-interest savings accounts, comparing and limited to: RBC, Simplii Financial, Motive Savvy, Manulife, KOHO, and Tangerine. Research conducted by Rush Ventures and based on data taken from public websites on December 18, 2023. Research includes promotional offers with a term of 0-5 months.

² Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.

³ 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.

⁴ Restrictions apply to Quebec residents.