What Is a High-Interest Savings Account?

A high-interest savings account (HISA) is a specialized type of savings account that offers a more attractive interest rate compared to standard savings accounts. 

Even though the interest rate is generally variable, meaning it can fluctuate based on market conditions, HISAs still consistently outperform the rates offered by traditional savings accounts.

These accounts are a popular choice among Canadians aiming to maximize their savings for specific goals, such as a home down payment or funding a child's education. High-interest savings accounts are offered by most Canadian banks and credit unions, as well as some online banking platforms like Simplii.

How High-Interest Savings Accounts Work

Unlike standard savings accounts, which usually offer meager interest rates, HISAs often provide rates that can even rival those of Guaranteed Investment Certificates (GICs) or term deposits. This higher interest rate level allows your savings to grow more rapidly over time.

Most HISAs in Canada come with no minimum balance requirements and are free of monthly maintenance fees. Still, some institutions might impose a fee for withdrawals made before a certain period, making it essential to compare the features and terms of various HISAs in order to find the one that best suits your needs.

Below are some of the main fees charged by banks.

TFSA vs. High-Interest Savings Account

The majority of Canadians find themselves choosing between tax-free savings accounts (TFSAs) and high-interest savings accounts when planning for their future. Both of these options are popular for a reason, and have their unique merits and drawbacks: 

Tax-Free Savings Account

A tax-free savings account (TFSA) is a financial instrument that allows Canadians to earn tax-free income on deposits, interest, dividends, and capital gains. This allows your savings on interest earnings to grow significantly  over time.

TFSAs also provide you with the flexibility to withdraw your funds at any time without penalties, making them ideal for short-term financial goals like vacations or car purchases.

However, there are annual contribution limits to consider.

High-Interest Savings Account

HISAs, on the other hand, offer higher interest rates than most other savings venues, enabling you to reach your financial milestones more quickly. There are no contribution limits, but the interest you earn is subject to taxation.

Additionally, HISAs may come with withdrawal fees, making them less suitable for short-term financial needs and more optimal for those with a long-term savings plan.

Factors To Consider

Everyone wants their hard-earned money to work for them as best as it can, which is why choosing the right HISA is crucial for maximizing your savings.

Some of the biggest factors to consider when searching for a good offer are:

Interest Rate

The annual interest rate is pivotal in determining how quickly your savings will grow. Some HISAs offer tiered interest rates, which means you'll earn a higher rate only if you maintain a large balance. Additionally, be cautious of temporary promotional interest rates that some banks offer, which often exceed 2% but usually last only for a few months.

We suggest you always use a high-interest savings account calculator to determine how much exactly your money will grow over time.

Minimum Deposit

Some HISAs require a minimum deposit to open an account. If you're a beginner saver, you might prefer an account with no minimum deposit requirement.

Service Fees

While most HISAs don't charge monthly fees, the majority of them do charge service fees, and some much more than others. Always scrutinize the fine print regarding the service fees before committing to opening a HISA.

Deposit Insurance

Most Canadian banks are members of the Canada Deposit Insurance Corporation (CDIC), which provides insurance on deposits up to $100,000 per depositor per account type. If your savings exceed this limit, consider diversifying across multiple CDIC-insured banking institutions.