With so many savings accounts available from various Canadian financial institutions, how do you choose the best option for your needs?

What is a savings account?  

Perhaps we should first establish what exactly a savings account is. Let’s look at a very simple definition.

A savings account is a product offered by a financial institution where an individual may deposit money into an account. In turn, the financial institution pays interest each month based on the account balance.

Types of savings accounts available

• Standard savings account

Your money is easily accessible and earns a small amount of interest. There are often no bank fees associated with this kind of account.

• Cheque and savings account combined

Your money is easily accessible and earns a small amount of interest, but    usually less than a standard savings account. You have the added benefits of being able to write checks.

• High interest savings accounts

This account gives the highest interest rate possible but it will require a minimum amount to be deposited. Money is not as easily accessible.

Things to consider when choosing a savings account

Before deciding on which savings account to open, there are a number of factors that you need to consider.

• Interest rates

At the end of each month, a financial institution will pay you a small percentage of money based on the balance in your savings account. Obviously, the higher the interest rate associated to the savings account, the more money you will earn.

Be sure to study interest rate conditions thoroughly. Often, institutions only offer a high introductory rate which lasts for a few months. They also might offer a higher interest rate if your balance is kept above a certain figure. Once it drops below this amount, the interest rate is lowered as well.

• Service fees

Be sure to check the service fees for each individual savings account. Certain institutions may charge a monthly service fee while others charge for any transactions you might make on the account, including withdrawals, transfers or even deposits.

Sometimes a minimum balance is required to ensure you are not charged banking fees. Some institutions even allow a certain amount of free transactions each month before they start to charge any fees.

• The availability of your money

Savings accounts afford convenient and easy access to your money. Be sure to check the following however.

• Will you be charged for a withdrawal?
• Is your money available from an ATM or will you have to go to the institution itself?
• If your savings account is linked to another account, must the money first be transferred to that account before you can access it?
• Are internet or telephone banking options available on the savings account?

• Taxes

Some savings accounts are exempt from income tax while others are not. Take this into consideration when making your decision. If you do not want to pay income tax on your savings, open a tax free savings account.

• Savings protection

Are your savings protected if the financial institution goes bankrupt? If they are a member of the Canada Deposit Insurance Corporation then you will automatically have insurance for $100 000.

When choosing a savings account be sure to examine all of these options. Don’t be afraid to take your time and to shop around. Consider using this savings account selection tool as well.