What is a Savings Account and How Do I Use It?

There are many reasons to save money. The money you save could help you make a purchase that matters to you. It could give you a sense of financial security or serve as an emergency fund should need cash quickly. There’s no question that having some money on hand can give you peace of mind when it comes to your finances. 

While the reasons behind saving are clear, you may not know how to get started. The good news is that saving can be easy. All it takes is the right account and the discipline to put money aside for another day.

What is a savings account?

A savings account is a place to hold your money. You can open a savings account at a bank or a credit union. While different savings accounts might come with different features and interest rates, what they have in common is that they are considered a safe place to hold the funds you don’t want to spend, but want easy to access to. 

How is a savings account different from a chequing account?

Savings accounts and chequing accounts serve different purposes. A chequing account is meant for day-to-day transactions – it’s the account you would use to pay your bills, buy your gas or groceries, withdraw money or send Interac e-transfers. With a chequing account, money goes in and money goes out in a regular basis.

A savings account, meanwhile, is meant to park your money. Typically, you would deposit money into a savings account but only withdraw it when you’re ready to use the funds you have accumulated within it – like for a big purchase or to cover an expense you didn’t plan for.

The fees and interest rates of chequing and savings accounts reflect their intended uses. For example, you typically don’t earn interest in a chequing account, but it will come with a set number of no-cost transactions per month (for a fee, some accounts come with unlimited transactions).

With savings accounts, meanwhile, you will typically earn interest on your balance. How much interest you earn depends on the type of account you have. Because a savings account isn’t meant for daily transactions, it will typically charge you for withdrawals or purchases made from the account – deposits, however, are free.

How does interest work on a savings account? 

With most savings accounts, you will earn some interest on the money in your account. The higher the interest rate, the more money you will earn. There are different types of savings accounts that pay interest in different ways. For example:

• Basic savings accounts: These accounts pay a modest interest rate on the money you hold in them.

• High-interest savings accounts (HISAs) offer a higher rate of interest than basic accounts. However, HISAs may have some restrictions, such as online transactions only.

• Tiered savings accounts: These accounts pay a different rate of interest depending on your balance. The higher your balance, the higher the interest rate.

• Kids’ savings accounts: Designed for children, kids’ savings accounts may offer more than typical savings features. For instance, they may offer free debit transactions or Interac e-Transfer transactions.

What are the benefits of opening a savings account? 

Just as there are many benefits to saving, there are many benefits to opening a savings account. Here are some of the most prominent:

• Earning interest: You can earn interest simply by holding money in a savings account, which will grow your money.

• Easy access to funds: When you need to use the money you have saved, you can simply withdraw it or transfer it to your chequing account.

• It’s saving made easy: If you also have a chequing account, saving can be very simple. By setting up regular transfers from your chequing to your savings account, you can save without even thinking about it. Over time, you’ll be impressed at how much your savings have grown!

• No monthly fees: Since most savings accounts do not charge monthly fees, saving costs nothing.

What to consider when choosing a savings account

As you look into opening a savings account, there are a few things to look for that can help you choose.

• Interest rates: As mentioned above, the higher the interest rate, the more money you will earn on your balance. With tiered savings accounts, where you earn a higher rate of interest depending on the amount of money you have in your account, it will be important to monitor your balance and understand the tiers so you can meet your savings expectations. Keep in mind too that sometimes, financial institutions will offer introductory or promotional rates that are higher than their standard rates. Once the time period for the offer is up, the rate may go down. Make sure you understand the terms of any promotion you’re exploring and ensure that you will continue to earn a satisfactory rate once the initial period is over.

• Minimum balance: Some savings accounts may only pay interest if your account balance is over a certain amount. Others will pay you interest regardless of your balance. 

• Transfers: Having both a chequing account and a savings account at the same financial institution can make saving easy, as you can transfer money from one account to the other – either digitally or at the ATM. If your savings account is at a different institution, you’ll want to make sure that it’s easy to transfer money in – whether it’s a one-time transaction or a regular, automated transfer.

• Withdrawals: One of the most important considerations of a savings account is whether you can easily access your money when you need it. Find out if there are fees involved in withdrawing funds or any other restrictions (i.e., some accounts may not pay interest on your balance in a month where you make a withdrawal). Also, be sure to understand if there will be a delay in getting your money.

How do I choose the best savings account for my needs?

Choosing the best savings account for you depends on a few things: how much money you are starting with (and how big you expect your balance to grow), how often you plan on accessing your money, and whether you prefer to bank online, in-person or at an ATM.  Think about your priorities and evaluate the account features against your specific needs.

Another consideration is where you have your chequing account. Having both a chequing account and savings account at the same bank makes it easy to transfer funds between them — so if you have a chequing account at a particular bank, it may be a good idea (and a simpler process) to open a savings account at the same place. 

How do I open a savings account?

It’s easy to open a savings account in Canada. You can open online, in-person or by phone. If you already have a chequing account, adding a savings account can be as easy as a few clicks within your online banking session!

Frequently asked questions about savings accounts

How do I find the best savings account rates?

It’s easy to compare savings accounts. If you want to compare across Canadian banks and credit unions, an online search can help you find the highest rates. For instance, you can visit RBC’s savings accounts website to compare interest rates.  

How much should I keep in my savings account?

Financial experts suggest having an emergency fund of three to six months’ worth of expenses – so this could be a good starting point. If your account has a minimum balance for earning interest, that may also be a benchmark to follow. Ultimately, however, how much you save may depend on your specific savings goals. 

Are there savings accounts for kids and students?

Yes, there are savings accounts designed for young children as well as for students with growing financial needs. These accounts are set up with certain features designed to help kids and students learn about money and set their own savings goals. 

There are many types of savings accounts to choose from, each with different features and benefits. It’s easy to explore the options available at RBC and see the accounts that can help you reach your savings goals.

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