Canada’s Best High Interest Savings Account (HISA) Rates in 2020
Have you ever thought about how your current savings accounts are barely earning enough interest? Wouldn’t you rather open a savings account that properly rewards you for saving effectively, with virtually zero added drawbacks? Demand for high-interest savings accounts is steadily growing as more people hear about their competitive interest rates. This article will not only teach you about the benefits of saving, but also includes any information you’ll need about high-interest savings accounts in Canada within one ultimate guide. There’s no better time than today to become informed and start saving like a pro.
WHAT YOU NEED TO KNOW ABOUT HISA
What Is a High Interest Savings Account (HISA)?
Put simply, a HISA is a financial product that generates a higher interest rate than a traditional savings account. The HISA is designed to achieve your financial goal of saving money at a generous rate for an extended period of time. As a result, it is important to note these accounts are typically less “transaction-friendly” when compared to chequing accounts. However, there are a vast number of options and providers out there for HISAs, including ones that don’t charge any monthly fees or transactional penalties. An HISA is a very common financial product and the best HISA rates are offered by credit unions, big banks, and most notably virtual banks – who typically offer the best rates.
Regular Savings vs. High Interest Savings (HISA Accounts)
The main differentiating factor between these two similar financial products lies within the rate of interest. Institutions with competitive HISA interest rates will look to provide the account holder with an interest rate greater than 1%, while regular savings accounts offer significantly lower rates. Since this product is widely available on the market, many brick and mortar banking locations offer HISAs, although the best value on your deposit will likely be offered by online-only banks. Another advantage of opening an HISA is that they are better at shielding your money from inflation, especially if you can secure an interest rate of 2% or more.
Why Should I Get a High Interest Savings Account, or HISA?
Put simply, HISAs grant you the ability to deposit your secured funds at a guaranteed high savings account return, with virtually no risk of losses. This product is ideal for medium to long term savings that can be safely withdrawn in the future. Practical uses for an HISA include saving for expensive lifestyle events such as vacations, weddings, or affording the down payment on a home. They are also useful for the purpose of protecting your money during economic uncertainty, while still maintaining your liquidity. Since interest rates on competitive HISA plans are similar to common GICs, you could find yourself earning the same fixed rate on your deposit without the need to face early withdrawal penalties by locking into a GIC.
The Pros and Cons of HISA
|High interest for a savings account.
||Highest rate HISAs are generally exclusive to virtual banking only - which can restrict your ability to withdraw/deposit among other drawbacks.
|Most have negligible differences in fees when compared to a regular savings account (few or none).
||A small fraction of transaction types can involve large fees, depending on which financial institution you open an account with
|Fixed interest payments provide a reliable income stream.
||On average, savings account returns – even at high interest rates – are lower than traditional investments such as equity, if you have a higher risk tolerance.
|Higher liquidity than alternative interest-generating investments (your money is simple to retrieve)
||Money deposited in a savings account is usually less liquid than a chequing account.
Are HISA Safe?
Your money is very well protected under the assumption that you have opened your account under a reputable financial institution/bank. HISAs ensure the timely delivery of a fixed interest rate each month, unlike the volatile returns on other common investment vehicles (equities, crypto currency, mutual funds, etc). As a result, your HISA account does not go down in value if the stock market suddenly performs poorly. For additional protection, check with your provider to see if their HISA account plan is covered by the CDIC (Canada Deposit Insurance Corporation). The CDIC is a government initiative that works to guarantee your money in the event that your financial institution fails, which means that any deposited funds plus interest earned will be reimbursed to a certain degree. See the CDIC website for your eligibility in regards to your exact deposit protection amount.
Taxes on HISA
The short answer is yes. Taxes must be paid on any interest earned from an HISA – very similar to any taxes paid on interest from a regular savings account. You should note that you do not pay any taxes on your deposited amount; instead you pay only on the accumulated interest. The exception to this rule is the Tax Free Savings Account or TFSA. An account opened under this financial product can still enjoy tax-free interest at a higher rate, under certain conditions.
Penalties for Withdrawing from a HISA
Most (if not all) HISA penalties are dependent on the regulations of your financial institution. Different saving accounts may include a small range of penalties regarding withdrawals or transactions, although truly major fees mainly apply to registered accounts such as TFSA/RRSP. As of 2020, most banks whether online or brick and mortar are offering unlimited withdrawals with zero deductions and penalties even on their best HISA rates. Some plans may include fees for ATM withdrawals or transactions that involve your deposit. Remember that you’ve likely opened a HISA for the purpose of saving money – and each withdrawal sets you back in terms of the interest gained on your deposit, so aim to minimize withdrawals whenever possible (even if there are no associated fees).
BEST HISA RATES CANADA
EQ Bank is a trademark of the Canadian-operated institution Equitable Bank (EB). Unlike EB, EQ Bank is a solely digital (online only) bank that saves money by operating at a lower cost from owning zero physical branch locations. As a result, they’re able to offer you an everyday interest rate that is significantly higher than the industry standard. Their non-promotional rate is an incredible 2%, which is calculated on your daily closing balance and paid out every month. This highly versatile savings account will earn you a generous return on your savings, while still keeping fees low and functionality the same.
- Highly competitive interest rate (2%)
- No monthly fees
- No minimum balance
- Unlimited free e-transfers (Interac)
- Supports bill payments and cheque deposits
- Accessible through mobile banking
- Daily transactions are unlimited and free of charge
- Insured by the CDIC
- $200,000 maximum balance per customer
- No walk-ins or access to a physical location
- Limited variety: EQ Bank does not offer a wide range of account types, neither registered/non-registered (TFSA, RRSP, RESP)
- Unavailable to Quebec residents
Conclusion: EQ Bank HISA is a great choice for competitive savers even if the online institution fails to offer more traditional banking necessities like debit cards. The 2% interest rate is hard to ignore as it gives savers with less than $200,000 in deposit funds a good head start in growing their wealth.
Tangerine Bank, formerly ING Direct, pioneered the concept of virtual banking in Canada as a Scotiabank subsidiary. By introducing this idea to Canadian markets, residents were given the option to park their money somewhere else than the Big Five, therefore helping to pave the road for the Canadian financial technology industry. Tangerine bank focuses on providing higher interest rates and lower fees than big-five bank customers were previously used to, while also hosting a variety of traditional banking features outside of the brick and mortar setting. Their standout feature is Tangerine’s unbelievably high promotional rate of 80% which drops down to 0.40% after the given “new Tangerine sign up” period that lasts for 5 months.
- Introductory 5-month promotional interest rate (2.8% to 0.40% regular)
- No monthly fees
- No minimum balance
- Unlimited free cash withdrawals/deposits from Scotiabank or Tangerine ATMs within the country
- Unlimited free e-Transfers (Interac)
- Extensive account management options
- Mobile banking support
- Wide offering of traditional financial products that are not found at the majority of online-only Canadian banks
- Insured by the CDIC
- $1,000,000 maximum balance per customer
- No access to a brick and mortar location
- 40% regular interest rate after the 5-month sign up period is not as generous as other online-only banks
Conclusion: Tangerine HISA is very attractive to new customers that wish to dip their toes into the world of online banking without giving up all the functionality of a traditional bank. With a diverse banking system that is backed by Scotiabank, clients can rest assured that their assets are looked over by one of the Canadian Big Five. While there are currently no official physical branches for Tangerine, they have set up “Tangerine Cafes” in popular metropolitan areas in Canada for clients to access a few financial tools and resources – or even just to seek advice over a cup of coffee!
LBC Digital is a Canada-wide online banking segment offered by Laurentian bank, which does most of its business in the province of Quebec. By increasing their accessibility with this digital exclusive, the major financial institution is zoning in on clients from all over the nation. Laurentian, while not one of the accredited top five, is still a Schedule 1 bank in Canada. This score represents its trustworthiness to lenders, so your money is safe in an LBC Digital savings account (relative to independently owned online-only banks). By opening up a HISA with LBC Digital, you can take advantage of a tiered interest rate system involving a 25% rate for deposits up to $500,000 and 1% for deposit sizes above this tier. This product can be claimed by linking your LBC Digital account to your current financial institution.
- Exceptionally high top-tier interest rate (up to 2.25% for account balances less than $500,000)
- No monthly fees
- No minimum balance
- Unlimited free monthly transactions
- Unlimited free pre authorized deposits
- Free e-Transfers (Interac)
- Free proprietary ATM accessibility (Laurentian Bank)
- Insured by the CDIC
- $1,000,000 maximum account balance
- Account fees are more prominent
- Non Sufficient Funding fee (NSF) of $50
- HISA early closure fee of $25 (applicable within the first 3 months)
- Dormant account fee of $25 for years 2-9, and $40/annum exceeding 10 years
- Returned item fees of $5
- Overdrawn fee interest rate of 21%
Conclusion: LBC Digital has a slightly stricter fee inclusion policy than competing online banks, but it still offers a very high non-promotional interest rate of 2.25% (assuming your account balance is less than $500,000). Savers that can carefully navigate LBC Digital’s fee policy and avoid any unnecessary charges may greatly benefit from a high interest rate coupled with proprietary ATM services.
Wealthsimple Cash launched in the beginning of 2020 by the Canadian financial technology company Wealthsimple, known for their robo-advisor core competency and discount virtual brokerage. Their take on a flexible HISA (Wealthsimple Cash) is essentially a hybridized savings and chequing account – so it has all the transactional convenience of a chequing account, while still generating modest interest returns of 90% on your deposit.
- High non-promotional savings rate (0.90%) when compared to regular savings accounts and chequing accounts
- Transaction capabilities of a regular chequing account
- Fast and simple account set up
- No monthly fees
- No minimum balance
- “Free” ATM withdrawals Canada-wide (any associated costs are reimbursed by Wealthsimple up to a certain limit) – coming soon
- Wealthsimple Cash Visa card (similar to a debit or prepaid)
- Supports direct deposit
- Supports both Google Pay and Apple Pay
- CIPF Insured (Canadian Investor Protection Fund)
- Not insured by the CDIC
- Rate is not directly competitive when compared to alternative online-only banks
- Does not currently support e-Transfers (Interac)
Conclusions: Wealthsimple is rapidly becoming Canada’s largest online wealth management company, and as a result some customers may trade away a higher interest rate with competing banks for Wealthsimple’s convenience. A Wealthsimple Cash account is loaded with extra features that make signing up worthwhile even if saving is not your primary intention, and the account gives you value in multiple ways. Much like Tangerine, Wealthsimple caters to customers that want to have all of their virtual banking needs in one place.
Oaken Financial is a deposit-based division of Home Trust, an independent loans company. While Home Trust has numerous physical offices established across Canada, Oaken Financial is entirely digital. Due to their inexpensive operational costs made leaner from a lack of brick and mortar locations and extra features, Oaken Financial can offer savers a very generous rate of 2% on their deposits.
- Very competitive interest rate (2%)
- No minimum balance
- No monthly fees
- Zero limits on transactions
- Insured by the CDIC
- Very limited physical location access
- Limited features and product offerings (only savings accounts and GICs)
- No dedicated mobile app – website banking only
- No bill payment support
- No cheques available
- Dormant account fees of $20/annum inactive (after year 2)
- Monthly paper statements cost $2 each month (free for digital)
Conclusions: Oaken Financial focuses on delivering the essentials to clients, at the cost of excluding many bells and whistles provided by competing virtual banks. This is the ideal bank for a gimmick-free saver who only needs a saving account for its primary purpose – to make periodic deposits and save (at a high interest).
||Traditional banking services offered + ATMs
||Generous tier-based rates
OUR THOUGHTS ON CANADIAN HISA
An HISA is an important financial product that applies to everyone – regardless of income level. Whether you’re a senior level executive, small business owner, or even a cash-strapped student, you should really take advantage of parking your money somewhere with a guaranteed return. This becomes especially important if you need access to those funds at anytime, since you can do electronically. In today’s consumerist culture, it’s becoming all too easy to blow your entire paycheck on a variety of goods and services. If you set up a savings plan, you’ll keep more money in your own pocket and spend less on non-essential products. By signing up with one of our recommended Canadian HISAs, you’ll soon become an expert saver.
If you want the potential to earn an even higher promised interest on your deposits, click here to check out our article on Guaranteed Investment Certificates
HISA Frequently Asked Questions (FAQ)
1. How does a high-interest savings account work?
In general, a high-interest savings account will yield a profit on whatever you deposit through compounding interest. Compound interest is a financial term that relies heavily on time as a factor of growth. The longer you keep your money in a savings account untouched (meaning as few withdrawals as possible), the higher your balance will increase, since your funds will compound periodically. While the returns on your principal might seem modest in the short run, the high-interest savings account acts as an emergency fund for the long run; and you can rest assured that your money is safe with the best HISA accounts Canada has to offer.
2. What is a good interest rate on a high interest savings account?
Currently the best interest rates in Canada are close to 2%. Higher rates are typically only available through promotions, tradeoffs, or a tiered rate system.
3. How is interest calculated on a high interest savings account?
In your first year of using an annually-compounded account offering a 2% rate, with a one-time deposit of $1000, you will earn $20 for a total of $1020. Assuming you don’t deposit anymore funds into that account, the following year you will earn $20.40 (an additional 40 cents – since your $20 gets automatically reinvested). Then you’ll earn $20.80 the next year, and so on so forth. The effects of compounding interest are greatly enhanced when you supplement your initial lump sum with regular deposits, such as setting aside $100 each month to store in a high rate HISA. Another important feature of savings plans to consider is their compounding frequency, or the amount of times your money compounds in a given year. The majority of HISA accounts compound your deposit monthly.
4. How do you set up a high interest savings account online?
Given the growing popularity of online-only HISA, it has never been easier to open an account with a financial institution. The whole HISA setup process from start to finish usually only takes a few minutes – the only thing that could possibly delay the process is how you choose to fund your account (transferring from an external bank could take a few business days). HISA providers only ask for your personal identification information (name, phone number, email, birthday, address, SIN, etc).
5. What is a High Interest TFSA Account?
A high interest TFSA, or tax free savings account, is a registered saving tool that lets you earn a tax free high yield. The only caveat is that a TFSA comes with added rules and strict restrictions. The most important rule to follow if you’re considering a high-interest TFSA is the amount of contribution room for your deposit (TFSA contribution room increases annually and is measured in Canadian dollars). Gains and losses on your principal won’t affect how much you can further contribute, but there is a hard limit on contributions since the account room is somewhat age-dependent.
6. Do I need a minimum balance to get a High Interest Savings account?
While this ultimately depends on the financial intuition you choose to open an account with, the overall answer is no. Many online banks will feature accounts with a maximum balance but no minimum balance, the only “catch” is that they want your business.
7. How long does it take to withdraw money from a HISA account?
Depending on your financial institution, you could be able to make physical cash withdrawals at ATMs or shift funds to a different account via electronic transfers. Other methods include over-the-phone transfers or wire transfers. Often times there is a lag period when transferring funds with an online bank, and these delays can range anywhere from 1 to 3 business days. By planning accordingly, you can navigate these lag periods to have your cash ready by the time you actually need it.
8. Should I open a HISA account with my current bank or a different one?
This is entirely dependent on your needs, because in reality there isn’t one definitive answer. If you value banking convenience and enjoy having all of your financial services in one place, it might be best to open a HISA with your current main financial institution. On the other hand if you consider yourself part of the new generation of “deal hunters” you’re more likely to find a better interest rate by comparing different online-only providers.
9. Can I use my savings account to pay bills?
Unless you opt for a hybrid chequing and saving account (for example Wealthsimple Cash) the general answer is no. Bill paying is counter intuitive to your savings goal, so it wouldn’t make a lot of sense to add it as a HISA feature. In most cases, if you need to access those funds in order to make timely bill payments, you would transfer the money to a chequing account instead. Note that it simply isn’t advised to make bill payments with your savings even if your bank offers it as a feature.
10. When should I use a savings account instead of a chequing account?
Again the answer is it depends on your financial habits. Think of a chequing account as a “transaction tool” that helps pay for your everyday expenses such as coffee, food, and other common items. At the same time, treat your savings account like a backup income source that you only access when it’s needed.
11. Will the rate on my savings account ever change?
Truthfully, every savings account provider sets their rates with respect to the federal Bank of Canada prime lending rate and other market conditions. By the law, banks are not required to withhold your generous savings rate forever (it might help to check out the terms and conditions of your HISA plan). A diligent financial institution will give you notice well in advance of any interest rate adjustments on your active accounts, but don’t assume your rate is fixed prior to checking your monthly banking statements to see if any changes were made.
12. Should I open a HISA or a GIC?
First off you should ask how important money accessibility is to you. A GIC, or Guaranteed Investment Certificate, is a great way to reliably grow your funds (much like an HISA) – but that money cannot be withdrawn without penalty before the GIC fully matures. Also consider the length of time you’re willing to dedicate funds to meet a savings goal. If you’re planning to save money for a really long period, and do not foresee any financial troubles in the short run, you’ll most likely find higher interest rates for long-term GICs.