The Best Place to Save Money and Earn Interest

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Are you looking for the best place to save money and earn interest? There are many places where you can put your hard earned cash, but not all of them will make you any interest. Even the ones that do may not have a high interest rate, so many people look for the best place to earn interest on money.

While earning interest is excellent, it might make more sense to invest your money depending on your situation. Ultimately, what you do with your cash is up to you, but you need to consider your goals. Here are the best places to save money and earn interest.

Understand your time frame

Before you look for the best place to earn interest on money, you need to understand your time frame. If you need the funds to make a purchase within the next five years, you have a short time frame. If you don’t think you’ll need to access the money for six or more years, then you have a longer time frame. This is relevant because your time frame will determine where you should invest your money.

Let’s say your goal is to buy a home in two years. All the money that you’re saving is for your down payment. Since you’ll need your savings in two years, you really can’t afford to take many risks. The last thing you want is for your money to drop in value right before you need it. Because of this short time frame, it’s recommended you stick to safe investments such as a high-interest savings account, guaranteed investment certificates, or bonds. These products won’t pay you much interest, but it’s doubtful that your money will drop in value.

On the other hand, let’s say the money you’re saving is for your retirement, and that’s more than 40 years away. You could easily invest in riskier products (equities) such as index funds and exchange traded funds (ETFs) since they’ll have a better return than safer investments. While riskier investments are more volatile, if you don’t need the money for a few decades, then any dips in the market shouldn’t matter to you. As you get closer to when you need the money, you would just switch things over to safer investments.

Savings account

For many people, the best place to save money and earn interest is a savings account with their bank. Since savings accounts are separate from chequing accounts, most people are less likely to use them for daily spending. Just deposit your money and watch it grow, right?

Not exactly. While there’s no denying that savings accounts are incredibly convenient, there’s one major problem about them. If your savings account is with a traditional bank, think the big 5, then it’s highly likely that the interest rate you’re getting is relatively low. In addition, you may have to pay an account fee that cuts into your returns. Savings accounts are fine if you just need a place to earn interest on your money, but there are much better options out there.

High-interest savings accounts

For more than two decades now, the best high-interest savings accounts in Canada have paid significantly more than traditional banks. When I first opened my ING account (now known as Tangerine), I earned about 6% interest. Admittedly, high-interest accounts don’t pay anywhere near that these days, but many of them are significantly higher than regular savings accounts.

For example, EQ Bank has consistently paid one of the highest interest rates available on savings accounts. Even though they’ve had to lower rates as the bank of Canada has reduced interest rates, EQ Bank has still been one of the better options. Instead of focusing on promotional rates, EQ Bank gives you the best possible interest rate at all times. There’s no special offer or gimmicks. You get the same interest rate all the time. Best of all, EQ Bank was one of the first digital banks to have no account fees and no e-transfer fees.

These days, there are a lot of high-interest saving accounts available. EQ Bank and Tangerine have been around the longest, but newer players such as Motive Financial and LBC Digital have also provided customers with great interest rates. In my opinion, a digital bank is the best place to save money and earn interest.

Guaranteed Investment Certificates

Guaranteed Investment Certificates (GICs) are a very traditional investment product that is still popular these days. GICs are essentially term deposits. You pick your term. E.g. 90 days, 1 year, 2 years, 5 years, etc. and you get paid a fixed interest rate. Generally speaking, the longer you tie up your funds, the higher interest rate you’ll get.

What makes GICs attractive is that they’re a very safe investment and are offered by major financial institutions, so many people consider it the best place to save money and earn interest. The downside of GICs is that your money is usually tied up for the duration. There are cashable GICs available, but you could lose out on all the interest. Some people prefer to use high-interest savings accounts instead since you can pull your money out at any time, and the interest rate is only marginally lower than GICs.

However, using GICs as part of your portfolio is still smart, especially if you create a GIC ladder. To do this, you would buy multiple GICs with different terms. For example, you could buy one for 1 year, 2 years, 3 years, etc. This way one GIC will mature each year so you have access to cash. Alternatively, you could purchase another GIC and keep building the ladder.

Index funds

Index funds have become incredibly popular over the years because the management expense ratio (MER) that they charge is significantly lower compared to mutual funds. As a rough estimate, the average mutual fund in Canada charges an MER pf between 2%-2.5%. Whereas index funds and exchange traded funds typically charge less than .50%. In other words, you’ll save around 1.5%-2% by using index funds over mutual funds. That’s a fair amount, especially when you compound it over your investing life.

If you’re looking for the best place to save money and earn interest, consider purchasing a fixed income index fund. With these funds, you won’t get huge returns, but you’ll be exposed to multiple fixed income products such as GICs, treasury bills, bonds, and cash. Think of it as a way to diversify your fixed income without having to purchase multiple products. 

If you’re looking to get higher returns and are willing to take on some risks, index funds are still a good choice. You could simply purchase an ETF that has a higher focus on equities. These ETFs have many stocks within the fund. As stocks grow in value, so does the value of your ETF. Investing in index funds has never been easier as there are now all-in-one ETFs such as VGRO and VEQT. Basically, if you bought just one of these funds, you could be set for life. Just keep investing and let your money grow.

How much interest does $10,000 earn in a year?

Okay, so now that you know the best place to save money and earn interest, how much will you actually make? It depends on the interest rate. Let’s say you decide to put $10,000 in a high-interest savings account that’s paying 1.5% interest. After one year, you would have earned a total of $150, for a total of $10,150.

Interest in savings accounts is compounded annually but paid out monthly. However, you also earn compound interest every year. That means after your first year, you’d be earning interest on interest. Or in other words, your 1.5% interest would now apply to $10,150 at the start of year two. At the end of year two, you’d have $10,302.25.

Admittedly, that may not seem like a lot, but that’s a typical return for fixed income assets. However, if you were to invest in equities, the rate of return is 4%-6% every year. As long as you keep investing, your money can grow pretty fast.

What is the safest investment?

If your top priority is keeping your money safe, then just about any fixed income security will be safe. These products have minimal risk, that’s why they don’t give you much of a return. Now, if you want a 100% guarantee, then the safety investments are treasury bills. The provincial and federal governments issue T-bills. The principal and interest are 100% guaranteed, so there’s no chance that you’ll lose money. You can buy T-bills from most financial institutions.

While savings accounts and term deposits aren’t technically 100% guaranteed, they’re pretty close to it thanks to the insurance that’s provided. The Canada Deposit Insurance Corporation (CDIC) provides up to $100,000 in insurance, on eligible deposits, per account. Just about every bank is a CDIC member, so you’ll be well protected. If you bank with a credit union, they also have their own insurance that a provincial organization provides. 

The Best Place to Save Money and Earn Interest

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi


  1. Anthony Del Matto on January 3, 2022 at 12:54 PM

    Any interest you earn you are going to pay tax on it. Best to use a TFSA ^k ?year per/ person!

    • Barry Choi on January 3, 2022 at 1:10 PM

      I personally use my TFSA for long term investing. That said, if you have the contribution room, and you’re saving for something soon, then using your TFSA is a great idea.

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