What is a High Interest Savings Account?

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You might be surprised to learn that many people ask what is a high interest savings account? Even though the answer should be straightforward, it’s not so simple. You see, a high interest savings account is different from a traditional savings account. In addition, high interest savings account are often associated with online banks even though you can get one from a brick-and-mortgar financial institution.

Still confused? Don’t worry, here’s everything you need to know about high interest savings accounts.

What is a high interest savings account? 

As the name implies, a high interest savings account (HISA) is a savings account that pays high interest. The term high interest is a bit relative as it’s based on the overnight rate provided by the Bank of Canada (Boc), In recent years, Canada has had record low interest rates, so even though there are HISAs, the interest paid can be quite low.

Generally speaking, the best high interest savings accounts in Canada are found with online banks. They offer better rates than brick-and-mortar banks since they have no physical locations. The amount they save in costs is passed onto clients in the form of higher interest. In addition, online only bank accounts typically come with no monthly fees and unlimited transactions.

Traditional financial institutions also offer HISAs, but they’re not nearly as attractive. For example, quite often you only get a limited number of transactions before you’re charged a fee. The interest you’ll earn is also quite low and often requires you to maintain a minimum balance.

Since online HISAs are free and they can be linked to your regular bank, you might as well open an account. You’ll be able to easily access your money while earning interest at the same time. 

What are the different types of high interest savings accounts

Since most Canadians associate high interest savings accounts with online banks, they actually all operate in a similar fashion. You’ll usually get unlimited transactions, a high interest rate, and there will be no monthly or annual fees. This is quite different from a regular savings or chequing account that offers different tiers of service.

In theory, you could get by with just a HISA for your day-to-day banking needs, but most people use it to complement their regular bank accounts. Basically, you could use your HISA for short-term savings while your chequing account is used for daily transactions.

It’s also worth noting that you can usually open up a HISA within your Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA).

Some of the best high interest savings accounts are available through EQ Bank, Tangerine, and Simplii Financial

What can you do with a high interest savings account?

Now that you know what is a high interest savings account, you’re likely wondering what you can actually do with it. As you can imagine, a HISA has very similar features to regular bank accounts such as:

  • Direct deposit from your employer and the government
  • Mobile cheque deposits
  • Electronic funds transfers between EQ Bank accounts and linked accounts
  • One-time payments for goods, services, or bills
  • Recurring pre-authorized payments
  • INTERAC e-Transfer
  • Debit card and ATM withdrawals (some accounts)

Although most HISAs offer the same features, some may have perks that others don’t. For example, EQ Bank has a partnership with Wise that allows you to send international money transfers. There’s also Tangerine and Simplii that offer debit cards since they’re owned by Scotiabank and CIBC respectively.

Do high interest savings accounts charge fees?

Generally speaking, HISAs don’t charge any monthly, annual, or transaction fees. However, since every HISA is different, you need to read your terms and conditions. 

For example, some HISAs allow you to order physical cheques, which you’d have to pay for. Some also charge non-sufficient funds fees, while others don’t. As you imagine, if your HISA offers you a debit card, transactions are only free when using a partner ATM. If you’re using an ATM that’s not associated with their network, you’d pay a user fee. You’d also have to pay a foreign currency conversion fee if you’re using an ATM outside of Canada.

In my personal experience, EQ Bank is the best HISA since they don’t charge any fees at all and they typically have some of the best interest rates. That said, they don’t offer a debit card, so you need to transfer money to your regular bank first if you need access to it. 

Are high interest savings accounts safe?

As long as your HISA is with a Canada Deposit Insurance Corporation (CDIC) member, your money is protected. That’s because CDIC offers insurance of up to $100,000 for eligible deposits. Admittedly, that may seem like a lot if you’re using your HISA for a major goal such as a home down payment, but you can actually have more of your money protected.

CDIC insures up to $100,000 for each eligible account. Individual accounts and joint accounts are considered two separate accounts. That means you could easily have up to $300,000 insured at the same financial institution if you have a joint account with someone. Plus, the $100,000 is per CDIC member. If you need more CDIC insurance, you could just open up another account and a different bank.

Do high interest savings accounts have debit cards?

A few HISAs do offer debit cards. The most popular ones are Tangerine and Simplii Financial. Since Tangerine is owned by Scotiabank, you can use its ATMs without having to pay any fees. Tangerine also has ATMs at their cafes where you can withdraw cash. Simplii Financial is owned by CIBC, so you get access to their network of ATMs at no charge. That said, the debit card with Simplii is only available for their No Fee Chequing Account.

Are high interest savings accounts worth it?

Now that you know what is a high interest savings account, there’s no doubt about it, HISAs are worth it. They have no fees, unlimited transactions, and pay you a high interest rate. There’s absolutely no reason why you shouldn’t have one. More specifically, you should get a HISA with an online bank since they pay much higher interest than regular banks. 

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

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