Published October 18, 2024 • 9 Min Read
TLDR
-
A savings account is a safe place to park money you want to save for another day
-
Savings accounts and chequing accounts serve different purposes
-
Savings accounts pay interest on your balance – the rate of interest depends on the type of account you choose
-
It can be easy to grow your savings with regular, automated transfers to a savings account
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. Here are some basic details:
-
Easy to open: You can open a savings account at a bank or a credit union
-
A safe place to hold funds: A savings account is perfect for money you don’t want to spend right away
-
You can easily access funds: Withdrawing from your savings account is easy – there are no restrictions or penalties to worry about
How is a savings account different from a chequing account?
Savings accounts and chequing accounts serve different purposes.
About chequing accounts:
-
Meant for day-to-day transactions: A chequing account is what you would use to pay your bills, buy your gas or groceries, withdraw money or send Interac e-transfers
-
An account that gets regular use: Money goes in and money goes out on a consistent basis
-
No interest earned: Chequing accounts typically don’t earn interest on balances
-
Transactions included: Depending on the type and structure of your chequing account, you may have a set number of transactions or unlimited transactions – these accounts usually come with a higher fee
About savings accounts:
-
A place 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
-
Interest earned on balances: The amount of interest earned will depend on the specific account you have
-
Transactions for a fee: 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: How easy is it to withdraw funds at the bank you’re considering?
-
How you like to bank: Do you prefer to bank online, in-person or at an ATM?
-
Whether you already have a chequing account: Having both a chequing account and savings account at the same bank makes it easy to transfer funds between them. It also tends to be a simpler process to open a savings account at the institution where you have your chequing account.
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!
Should I get a savings account?
A savings account may be right for you if:
-
You wish to save up for a particular goal or a rainy day
-
You want to easily access your money when you’re ready to use it
-
You want to keep your savings separate from your spending money
A savings account may not be the right choice for you if:
-
You don’t have a chequing account: You may first need an account to use for everyday transactions
-
You want to earn higher returns: While a savings account earns interest, if you’re looking to aggressively grow your money you may be better suited to investing in stocks, mutual funds or other assets that offer higher returns
-
You don’t want easy access: If you’re concerned about spending your savings before you reach your goals, you may prefer an account that locks away your money over a longer term
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.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
Any information, opinions or views provided in this document, including hyperlinks to the RBC Direct Investing Inc. website or the websites of its affiliates or third parties, are for your general information only, and are not intended to provide legal, investment, financial, accounting, tax or other professional advice. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Direct Investing Inc. or its affiliates. You should consult with your advisor before taking any action based upon the information contained in this document.
Furthermore, the products, services and securities referred to in this publication are only available in Canada and other jurisdictions where they may be legally offered for sale. Information available on the RBC Direct Investing website is intended for access by residents of Canada only, and should not be accessed from any jurisdiction outside Canada.
Share This Article
