High-Interest Savings in Canada
There are so many things to consider when it comes to mastering your finances - how to maintain a strong credit rating, how to budget effectively, how to prioritize your needs and wants… the list goes on and on! Understandably, if you’re in the early stages of re-shaping your financial habits, it can be tough to know what to do sometimes. However, there are a few personal finance no-brainers, and one of them is keeping your savings in a place where they’re going to earn the highest interest rate they possibly can.
This is due to a number of factors. For one, if you ask people if they’d rather earn more or less money, it’s going to be unlikely that anyone opts to earn less. For obvious reasons, most people want to be earning a high interest rate on their savings so they can get the greatest return possible on their assets and take home more money to put towards their financial goals. But, on a deeper level, it’s also tied to the ever-present enemy of your savings: inflation.
Inflation is a measure of the rate at which the cost of goods and services rises over a period of time. If you’ve ever gone to the grocery store, your local cafe or a gas station to make a purchase and thought “wow, that used to be much cheaper!”, you’re experiencing the effects of inflation first-hand. Though it’s caused by a combination of many complex factors, inflation can be exacerbated by rises in the cost of raw materials and wages, rising consumer demand and government policies. It’s a phenomenon that affects the entire world, though to varying degrees in each country depending on the fiscal and economic conditions they experience internally.
The major problem created by inflation is that it has a negative impact on people’s purchasing power. When prices rise, your money buys you less of what you need. Using a simple example, imagine you receive a $100 bill on your birthday and you decide to put it in a jar to keep it safe for one year. If you’re facing a 3% inflation rate, your money will have depreciated in value over the course of the year and only be worth $97.09 on your next birthday. It’s not as though your $100 bill has magically become $97.09 while you weren’t looking - you still have the full bill. But, compared to today’s standards, that money will only buy you $97.09 worth of goods or services this time next year.
Now consider the rest of your savings. Inflation has a major compounding effect over time, and can seriously undercut the effort people put into saving money. You may be diligently saving for some major financial goal down the line like retirement, but all the money you’re putting away today simply won’t buy you the same amount of goods or services in 10, 20, 30+ years when you actually need to use it.
Unfortunately, nobody can completely avoid the effects of inflation. But, that brings us back to our original point: it’s a no-brainer to keep your savings in the place where they’re going to earn the highest interest rate they possibly can. The reality is, once you consider the effects of inflation, even if you’re earning a high-interest rate, you aren’t really “earning” anything at all - if you’re lucky, you’ll break even. But, would you rather break even or lose money? In a low-interest savings account, your money is depreciating in value AND you’re barely earning any interest to compensate for it. Instead, you need to be trying to recoup those losses where you can. You can’t fully outpace the effects of inflation unless your interest rate is higher than the inflation rate, but at the very least, saving in a high-interest account will help to mitigate the loss of value your savings will inevitably experience over time.
Now, with the above outlined, we’re sure you’re asking: where can I find the highest interest rate possible? First, it’s important to note that interest rates at all financial institutions are going to be tied to the Bank of Canada’s benchmark interest rate. As the rate rises, it becomes more attractive for people to save money and reap the rewards the higher interest brings. As that rate drops, it becomes more attractive for people to borrow money and saving tends to get pushed to the back burner. Right now, the benchmark interest rate posted by the Bank of Canada is very low, sitting at 0.25%. After the intense economic contractions created by the pandemic, the Bank of Canada is encouraging the country to get out and spend their money to help get the economy back on track.
To find high interest, you should be looking specifically for a high-interest savings account (often referred to as a HISA). There are a variety of HISA’s available in Canada, offered by both major banks and credit unions alike. Depending on the financial institution you decide to go with, the interest rate you find will likely sit somewhere between 1% and 2.1%. As a comparative measure, we’ve compiled a list of a number of Canadian financial institutions that offer HISA’s and their current interest rates for account holders. As of March 21, 2021,
EQ Bank = 1.5%
Tangerine = 2.1% for the first 5 months, then .10%
Laurentian = 1.4% on all deposits below $500,000
Alterna Bank = 1.2%
Simplii = 0.10%
Meridian = 0.45%
Oaken Financial = 1.25%
Wealthsimple = 0.75%
Now, we can’t get into a discussion about the best high-interest savings accounts in Canada without mentioning ourselves! A QUBER account is a free, digital savings account that’ll allow you to earn cash rewards just for saving money. When you successfully complete any QUBER Saving Challenge, you earn a cash reward worth 2% of the total you save. When compared to the list above, it’s clear that our rates are more favourable than all but for the first 5 months of having a HISA with Tangerine. Beyond that, our incentives aren’t tied to the Bank of Canada’s benchmark rate - you’ll earn 2% no matter what!
Plus, when you save at least $20 with QUBER, you’re automatically entered in our Save to Win contests. Beyond just being a digital savings account, a QUBER account also acts as a prize-linked savings account. That means, account holders are given the chance to win large cash prizes just by saving - it’s like a lottery, but instead of paying to play, you actually save money! So, when you join a QUBER Saving Challenge, you’re actually creating two benefits for yourself: you’re working towards a cash reward worth 2% interest on your savings AND you’re continuously increasing your chances to win a huge prize just for participating. At the very least, saving with QUBER as well as in a HISA is a sure-fire way to maximize the amount of interest you can earn on your savings without investing your money anywhere.
Now, before you officially open a HISA, note that it will likely have less features than a typical chequing account would. You may not have access to it by debit card or have ATM withdrawals, it may be an online-only account, you won’t get cheques (and so on). It’ll still likely be a low-to-no cost account with a fair amount of free transfers, so as long as you have another bank account to manage your day-to-day spending, it shouldn’t pose too much of a problem for you. Again, this is another area where saving with QUBER just makes sense. Saving with QUBER is straightforward, free and can be linked directly to any existing Canadian bank account. You can reap all the benefits of a HISA without having to join a new bank, pay any administrative fees or spend time filling out paperwork to join.
Before we leave you, we need to remind you that saving in a HISA alone means you’re offsetting some of the financial impact created by inflation, but not all of it. Investing in stocks, businesses, bonds and other types of securities that generate favourable returns for you is the only way to truly “beat” the effects of inflation, so don’t forget it as you grow your savings!
But, until you’ve got a comfortable emergency fund built up, you’ll need to focus your efforts on just that: saving. 2020 should serve as an excellent lesson in the volatility of the stock market, and a reminder of just how quickly massive gains can become massive losses when things flip. All investments involve risk, so you need to be in a position where you can withstand a worse-case scenario with your portfolio and remain financially stable before getting involved. Though everyone’s situation is different, it’s generally advocated that people have 3-6 months of their salary or 3-6 months of their expenses (usually a similar figure) saved before taking on financial risks like investing.
Final Thoughts
We’ve said it before and we’ll say it again - when it comes where you keep your savings, you should be seeking out the highest interest rate you can! Saving money is the foundation of a strong financial plan as it enables you to reach your long-term goals and take risks that’ll help you get to where you need to be. However, because of inflation, simply saving alone isn’t enough to secure your financial future. Saving in a HISA (or in a QUBER account!) is one of the best ways to offset the negative effects of inflation and can help you preserve the value of your hard-earned money long into the future.
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