You may be surprised to discover that many individuals inquire about what exactly constitutes a high interest savings account. While the answer seems straightforward, it’s a bit more complex. A high interest savings account (HISA) is distinct from a traditional savings account, and it is often linked to online banking institutions, though you can also find them at physical banks.
Still unsure? No need to worry; here’s a comprehensive guide to understanding high interest savings accounts.
What is a high interest savings account?
True to its name, a high interest savings account (HISA) provides a higher interest rate compared to standard savings accounts. However, the term ‘high interest’ is somewhat relative, as it is influenced by the overnight interest rate set by the Bank of Canada (BoC). In recent years, Canada has experienced historically low interest rates, meaning that even readily available HISAs may offer minimal interest returns.
Typically, the most attractive high interest savings accounts in Canada are offered by online banks. These institutions often provide better rates than traditional banks since they do not maintain physical branches. The cost savings they achieve are passed on to customers through higher interest earnings. Furthermore, accounts with online banks usually come with no monthly fees or transaction limits.
While traditional banks also offer HISAs, their offerings are generally less appealing. Frequently, these accounts have limitations on the number of transactions before incurring fees, and the interest rates are considerably lower, often requiring a minimum balance to qualify for earnings.
Given that online HISAs are generally free and can be linked to your existing bank, opening one is a sound decision. This enables you to access funds easily while benefiting from interest earnings.
What are the various types of high interest savings accounts?
Most Canadians link high interest savings accounts with online banking, as they typically share common features. You can expect unlimited transactions, competitive interest rates, and no associated monthly or annual fees. This is a stark contrast to standard savings or checking accounts, which tend to offer varying levels of service.
In theory, a HISA could suffice for managing your daily banking needs, but many individuals prefer to use it alongside their regular banking accounts. Essentially, you can utilize your HISA for short-term savings while making daily transactions through your checking account.
Additionally, it’s worth mentioning that you can often open a HISA within a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).
Leading providers of high interest savings accounts include EQ Bank, Tangerine, and Simplii Financial.
What can you do with a high interest savings account?
Now that you understand what a high interest savings account is, you may be curious about its uses. A HISA generally encompasses features similar to those of conventional bank accounts, including:
- Direct deposits from employers and government
- Mobile check deposits
- Electronic funds transfers between EQ Bank accounts and linked accounts
- One-time payments for goods, services, or bills
- Recurring pre-authorized payments
- INTERAC e-Transfer
- Debit card and ATM withdrawals (some accounts)
While most HISAs provide similar features, some come with unique perks. For instance, EQ Bank has a collaboration with Wise for international money transfers, while Tangerine and Simplii may offer debit cards, as both institutions are affiliated with Scotiabank and CIBC, respectively.
Do high interest savings accounts incur fees?
In general, high interest savings accounts do not charge monthly, annual, or transaction fees. However, it is essential to review the specific terms and conditions, as variations exist among different HISAs.
For example, some accounts may allow ordering physical checks, for which there may be associated costs. Additionally, some HISAs may impose non-sufficient funds fees, while others might not. If a HISA includes a debit card, keep in mind that transactions are usually free at partner ATMs, but fees may apply at out-of-network ATMs. You might also encounter foreign currency conversion fees when using ATMs abroad.
Based on personal experience, EQ Bank stands out for not having any fees and typically offering competitive interest rates. However, note that they do not provide a debit card, necessitating a transfer to your regular bank for access to your funds.
Are high interest savings accounts secure?
Your funds in a HISA are generally safe as long as the account is with a member of the Canada Deposit Insurance Corporation (CDIC). The CDIC insures eligible deposits up to $100,000. Though this amount may seem limited if you’re targeting substantial savings, like a home down payment, it’s possible to increase your total insured amount.
CDIC offers $100,000 in insurance for each eligible account. This means that individual and joint accounts count separately, allowing for up to $300,000 in insurance at the same institution if you hold a joint account. Additionally, the $100,000 limit per institution means that opening new accounts at various banks can further bolster your CDIC coverage.
Do high interest savings accounts come with debit cards?
A select few HISAs provide debit cards, with Tangerine and Simplii Financial being the most notable. As Tangerine is owned by Scotiabank, customers can utilize its ATMs without incurring fees, including those located in their cafes. Simplii Financial, under CIBC, offers access to its network of ATMs without charge, although the debit card may only be available through their No Fee Chequing Account.
Are high interest savings accounts beneficial?
Now that you’ve gained insight into high interest savings accounts, there’s no doubt that HISAs are advantageous. They typically have no fees, offer unlimited transactions, and provide attractive interest rates. Therefore, everyone should consider having one, and opting for an online bank is a wise choice, as they usually offer far superior interest rates compared to traditional banks.