Updated April 21, 2013.
The high interest savings account market in Canada is pretty diverse. On one hand you have the established big banks that offer modest interest rates because most of their customers either don’t have enough cash to care about the rate or can’t be bothered shopping around. On the other hand there are smaller banks and credit unions that offer much higher rates.
I’ve been one of those big bank customers who didn’t have enough cash to care. In the last decade or so, most of our extra money has gone to maxing out my RRSP and paying off our mortgage. Saving money outside our RRSPs wasn’t a priority.
A couple of years ago however, we started up a TFSA savings account in order to have a bit of an emergency fund/savings vehicle for large purchases. That money has been stored at ING Direct and is currently earning 1.4% interest which isn’t the best rate available, but doesn’t seem too bad.
Recently, my mother-in-law sold her condo and moved into a senior’s residence. I’ve been entrusted to look after her savings and try to get a decent rate. With that motivation, I finally took a good look at the high interest savings accounts available in Canada and had to make a decision about where to put her money. With all this newfound knowledge, I can also think about moving our TFSAs to another bank to get a higher rate of return.
Streets and Allys
Until recently, one of the contestants in the Canadian high interest savings game was Ally Bank. This bank was a leader in the marketing arena and they also had some pretty decent interest rates, although not quite as high as some of their competitors.
However, one of the big banks bought Ally and has made it clear that they didn’t make this purchase to obtain the high interest savings account clients who are basically being kicked to the curb.
Not being an Ally customer myself, this news didn’t concern me too much, but the information I’ve researched on interest rates will hopefully help any current Ally customers to find a new home.
Enough of the blah blah – let’s get to the rates and then I’ll explain how I made my choice for the best savings account.
[updated/verified April 21/2013]
Bank Savings Account TFSA RRSP/RRIF Online Guarantee Quebec eligible
People Trust 1.90% 3.00% n/a Yes CDIC Oui
Canadian Direct Financial 1.90% 2.55% 1.35% Yes CDIC Non
Hubert Financial 1.90% 1.90% n/a Yes DGCM Non
Bridgewater Bank 1.85% n/a n/a No CDIC Non
AcceleRate Financial 1.80% 1.80% 1.80% Yes DGCM Oui
Outlook Financial 1.80% 1.80% 1.80% Yes DGCM Oui
Achieva Financial 1.80% 1.80% 1.80% Yes DGCM Oui
MAXA Financial 1.75% 1.75% 1.75% Yes DGCM Oui
Manulife Bank 1.55% 1.55% 1.55% Yes CDIC Oui
Canadian Tire Financial 1.50% 1.90% n/a Yes CDIC Non
ICICI Bank 1.45% 1.80% 1.40% Yes CDIC Oui
ING Direct 1.35% 1.40% 1.35% Yes CDIC Oui
PC Financial 1.35% 1.40% 1.35% Yes CDIC Non
Bank of Montreal 1.20% 1.20% 0.25% Yes CDIC Oui
CIBC 1.20% 1.15% 0.25% Yes CDIC Oui
Royal Bank of Canada 1.20% 1.15% 0.50% Yes CDIC Oui
Scotia Bank 1.20% 1.15% 2.00%* Yes CDIC Oui
TD Canada Trust 1.10% 1.05% 0.10% Yes CDIC Oui
*These are temporary teaser rates.
- Bank – Name of the bank. You can use this to search for their website.
- Savings Account – Interest rate offered on the non-registered savings account.
- TFSA – Interest rate offered on the TFSA savings account.
- RRSP/RRIF – Interest rate offered on the RRSP/RRIF savings account.
- Online – Do they offer online banking.
- Guarantee – This indicates whether the accounts are protected under the CDIC (Canada Deposit Insurance Corporation) or the DGCM(Deposit Guarantee Corporation of Manitoba).
- Quebec Eligible – Indicates if residents of Quebec are eligible to open an account.
My choice for mother-in-law savings (larger dollar amount of savings)
For my mother-in-law’s money, I decided to go with People’s Trust. Their regular savings account has 1.90% interest and the TFSA is 3.0%, they have online banking and are insured by the CDIC.
I didn’t just choose the bank with the highest interest rate, there were two other factors which were also important to me.
- Online banking. This wasn’t a show stopper factor, but if a bank doesn’t have online banking they better have a pretty high interest rate to make up for it. We need to do monthly withdrawals from this account.
- CDIC coverage. I’m not comfortable with the Manitoba credit unions because they are insured by a corporation which isn’t backed by the Manitoba government. Given that they only offer 1/10 of a percent more than the highest CDIC insured rates, I don’t think it’s worth the extra risk to chase a small interest rate difference.
My choice for our TFSAs (more modest amount of savings)
I’ve also decided to go with People’s Trust for our TFSAs. They have a really good TFSA rate and of course we will already be using them for my mother-in-law’s account. They have online banking and are CDIC insured.
[EDIT - The original version of this article had a different choice for bank. It was pointed out to me in the comments that People's Trust does have online banking and with it's superior TFSA rate (3%), they will likely be the best choice.]
It’s tempting to stay with ING, since we don’t have a huge amount of money in our TFSA and ING is very convenient and easy to deal with. However, I’m hoping to add more to our TFSA in the future, so the interest rate difference will add up over time.
General Recommendations for High Interest Savings Account
I’ve explained how I made my choice for the best bank to save money with, but there are a number of factors involved so I can’t just recommend one bank for everyone. It depends on your scenario and your preferences.
Here are some things to think about when choosing a high interest savings account:
- Big bucks – Higher interest rates are more worthwhile for higher dollar amounts. For example if you have $100,000 in savings, an extra half percent is $500 per year or $42 per month. That will add up to big bucks over a number of years.
- Longer time frame – The longer you will have the money in the account, the more worthwhile it is to go for a higher interest rate. The extra money will compound and build over time.
- Convenience – Are you going to be making a lot of deposits and withdrawals? Then look for a good online interface and easy access to your bank account. I’ve been using ING and they have a great interface and easy access to the money.
- Insurance – All the institutions I’ve listed are insured by the CDIC or DGCM. I’ve decided I only want CDIC coverage, but many savers will likely be ok with DGCM-protected institutions which offer slightly higher rates.
If you have larger amounts of money and some of it isn’t long term, it might be worthwhile to have two accounts. One account for the portion that won’t be touched for a long time – go for the highest interest rate for this one. The second account will be the ‘convenience’ account where the interest rate doesn’t matter so much since there will be a smaller balance and more transactions.
Ok, one recommendation
One recommendation I can make is for ING Direct. I’ve been using them for a number of years and I think they are great. The only drawback is that their interest rates are not all that competitive with some of the other banks.
However, if you don’t have a ton of money or your time frame isn’t that long and you want the convenience of a good interface and quick access to your money, the ING is definitely a good choice since the interest rate is likely a secondary consideration for you.
If you do set up an account with ING and want a free $25 deposited in your account after opening, then consider using my orange key code so I can make some money to feed my hungry kids (I get $25 as well) – my key code is 33089336S1 (that’s an “ess” near the end, not a 5).
How Does the CDIC Work?
The Canada Deposit Insurance Corporation is a federal Crown corporation backed by the federal government. This institution will guarantee your savings at member institutions up to $100,000 per account type and per institution.
CDIC only insures savings products like bank accounts and GICs (with terms up to five years). Investments such as mutual funds or stocks are not covered.
Any bank accounts (non-registered) at an institution will be covered up to $100,000 in total. So if you have $80,000 in your chequing account and $70,000 in your high interest savings account at the same bank – the CDIC will only cover $100,000. If you have more than $100,000 – consider opening up another account at a different institution to get more coverage.
RRSP, RRIF and TFSAs are considered different account types and each have their own $100,000 of coverage. So if someone had $100,000 in their bank account(s) plus $100,000 in a RRIF, $100,000 in an RRSP and $100,000 in a TFSA all at the same bank – they would be fully covered by the CDIC.
Accounts with different names are also considered as separate for insurance purposes. For example, someone with a bank account in their name and a joint bank account would have $100,000 coverage for each account because the names on the accounts are different.
How Does the DGMB Work?
The Deposit Guarantee of Manitoba is different than the CDIC. It is not backed by any government either federal or provincial. It is a corporation responsible for guaranteeing the deposits in Manitoba credit unions.
DGMB only insures savings products like bank accounts and GICs (with terms up to five years). Investments such as mutual funds or stocks are not covered.
The amount of savings guaranteed by the DGMB is unlimited. There is no $100,000 limit like the CDIC has.
The guarantee is available to any person depositing money to a Manitoba credit union regardless of their province of residence.
If you have an experience with People’s Trust or any other bank mentioned – feel free to leave your thoughts in the comments.