Advantages and Disadvantages of Savings Accounts in Canada

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by Enoch Omololu

Updated

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A savings account is a good place to park money you don’t need right away. It can hold funds you need in the near future, whether you are planning to make a down payment on a home, or saving towards a vacation or wedding.

While savings accounts have many advantages, there are also disadvantages to consider.

Below, I cover the pros, cons, and features of savings accounts in Canada.

Advantages of a Savings Account

Grow your money: While you can just as easily keep your money at home for easy access, it has no chance of growing in value under your pillow.

The best savings accounts in Canada pay interest which means you earn some income over time.

Low risk: Savings accounts are safe because your money is insured by Canada Deposit Insurance Corporation (CDIC) up to $100,000 per depositor and insured category.

Unlike stocks and bonds, savings accounts are very low risk. Your balance won’t fluctuate up and down like the stock market.

No monthly fees: Canadian chequing accounts can be pricy at up to $30 per month. Most savings accounts do not charge a monthly fee.

Easy to access: In addition to being free, savings accounts can easily be opened online. You can also transfer money from your savings to external banks you have linked to your account.

No lock-in periods: Unlike GICs (term deposits) that may be non-cashable or non-redeemable for a specific period of time, you can deposit or withdraw funds from a savings account at any time.

Low barrier to entry: Don’t have much money to save? Most savings accounts do not have a minimum balance requirement which means you can start saving with as little as $1.

Disadvantages of a Savings Account

Low interest rates: The interest rates offered by banks on savings accounts are abysmally low. And, your best bet for a rate that’s worth your time is with an online bank like the EQ Bank Savings Plus Account.

Variable rates: Banks can change the interest paid on savings at any time without prior warning. Fluctuating rates make it harder to budget as you can’t be certain how much income to expect.

Limited transactions: Check that your bank allows unlimited withdrawals from savings accounts. In some cases, you can only make so many transfers before transactions fees apply.

Insurance coverage limit: CDIC protection is limited to $100,000 per insured category.

Minimum balance: Some big banks have a minimum balance you must maintain to earn interest in your savings account.

In-person support: As already noted, the best savings account rates are often from digital banks that don’t have physical branches. While you can conduct all transactions using online banking, some people prefer in-person banking.

Compare the Best Savings Accounts in Canada

FeaturesEQ BankNeo FinancialKOHO
Interest rate1.25%*1.30%1.20%
Free transactionsUnlimitedUnlimitedUnlimited
Minimum balance$0$0$0
Monthly fee$0$0$0
Other featuresMobile cheque deposits, RSP, TFSA, and GICsNeo Mastercard0.50% cash back; budgeting app, free early payroll, and credit building service
Learn moreVisitVisitVisit

High Interest Savings Accounts in Canada

Learn about some of the top high interest savings account rates in Canada offered by digital banks.

1. EQ Bank Savings Plus Account

EQ Bank is the online banking subsidiary of Equitable Bank. It has over $6 billion in deposits and customers enjoy CDIC guarantee protection.

The EQ Bank Savings Plus Account pays up to 125x interest more than other banks with its standard 1.25% interest rate.

In addition, this no-fee hybrid account offers the best features of savings and chequing accounts, including:

  • Unlimited free debits and bill payments
  • Unlimited free Interac e-Transfers
  • Free mobile cheque deposits
  • No minimum balance requirement

Open an account or read our review.

2. KOHO Earn Interest

KOHO combines many of the features you’d like to see in savings, chequing, and credit card accounts.

KOHO users get access to a free budgeting app and prepaid card (no credit check or impact) that pays up to 2% cash back on all purchases. In addition, they earn a 1.20% interest rate on all balances after setting up at least one regular direct deposit to the account.

Interac e-Transfers, bill payments, and POS transactions are free. Also, you get a $20 bonus when you sign up here and make your first purchase using the KOHO Visa Card.

Visit KOHO or read our review.

3. Neo Financial

Neo Financial is one of the nearest online banks in Canada.

Its Neo Savings account offers 1.30% interest and no monthly fees. Clients also enjoy:

  • Free bill payments and Interac e-Transfers
  • No minimum balance
  • Unlimited free transactions

Neo Savings account deposits are held at Concentra Bank, a CDIC-member institution.

Open an Account or read review.

Related:

Have questions about savings accounts in Canada? Leave them in the comments.

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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