6 Types Of Savings Accounts

Distinguishing between different savings accounts means looking at their features, where you can open them and what they’re designed to do.

As you compare different savings accounts, it can help to ask these kinds of questions:

• Is this account designed for any specific purpose or goal?
• How much interest does this account earn?
• Are there minimum deposit requirements or minimum balance requirements to meet?
• Does the bank charge any fees for this type of savings account?
• Are there any tax benefits or advantages associated with this savings account?
• How accessible is the money in the account?
• Will I pay any penalties for withdrawing money from the account?

Doing this kind of research can help you decide which types of savings accounts to have. From there, you can choose where to open them and how to fund them.

Good for: People who need to save money for the short or long term and aren’t as concerned about getting the best interest rate, expressed as the annual percentage yield (APY).

Traditional savings accounts are what you may immediately think of when you consider where to save. These are the savings accounts you typically find at traditional banks or credit unions.

These types of savings accounts generally allow you to earn interest on your money, although they usually pay lower rates than other savings products. Many banks and credit unions allow you to open a regular savings account with a low (or no) minimum deposit.

Traditional savings accounts typically allow you to access your money from an ATM and transfer money from your chequing to savings account and back, without penalty. However, you pay a nominal penalty fee on some savings accounts when you pay for debit card purchases directly from your savings account at the point of sale.

Banks and credit unions may allow you to manage your account online, via mobile banking, by phone or at a branch.

If your bank or federal credit union is insured by the Canada Deposit Insurance Corporation (CDIC), then your deposits are insured for up to $100,000 per depositor, per account ownership category, in the event of a bank failure. The Provincial Deposit Insurer provides similar insurance for provincially-chartered credit unions.

Here are the pros and cons of a traditional savings account:

Pros

• It’s usually easy to open a regular savings account at a branch, and some banks allow you to do so online.
• You can earn interest on your savings to grow your money.
• You can visit a branch if you need help or want to deposit cash.

Cons

• The interest rates are usually low compared to other savings options.
• Monthly maintenance fees may cancel out interest earnings.
• Additional fees may apply for excess withdrawals.

Good for: People who want to earn a more competitive rate on savings while minimizing fees.

High-interest savings accounts—typically found at online banks, neobanks and online credit unions—are savings accounts that offer a higher APY compared to regular savings accounts. This is one of the best types of savings accounts to maximize your money’s growth.

Online banks often offer different types of high-interest savings accounts to attract savers who want to earn a better interest rate than what is found at brick-and-mortar banks and credit unions. This type of savings account may be appealing if you’re comfortable managing your account via website or mobile banking versus visiting a branch.

High-interest savings accounts are CDIC insured or insured by your respective provincial deposit insurer, just like traditional savings accounts. In addition to offering better rates, online banks tend to charge no, fewer or lower fees, including monthly maintenance or excess withdrawal fees.

Below are the pros and cons of high-interest savings accounts:

Pros

• You could earn a much higher interest rate compared to traditional savings accounts.
• Online banks typically have lower minimum deposit requirements to open an account.
• You’re less likely to be charged a monthly fee at an online bank.

Cons

• No branch banking access means you can’t deposit cash directly into your account at a branch.
• Transferring money between an online savings account and accounts at another bank can take up to a few days to process.
• You may or may not have access to your money via ATM, depending on the bank.

Learn more: What Is A High-Interest Savings Account?

Good for: People who want to earn interest on savings with a low investment risk, while having more options for accessing their money.

Money market funds (MMFs) are a type of mutual fund that contains your invested money for a shorter period of time than regular mutual funds or ETFs. You can find these accounts at brick-and-mortar banks, online banks and credit unions.

They often out perform high-interest savings accounts or GICs. There is some inherent risk with them, as there is with all investments, but they aren’t as risky as stocks or other, more volatile, investments. The low risk is because they are typically invested in vehicles that carry an inherently lower investment risk in general, like bonds, commercial paper, bankers’ acceptances and U.S. treasury bills.

Here are the pros and cons of money market funds:

Pros

• The investment matures after a year.
• They are inherently a low-risk investment based on the types of investment vehicles they include.
• They provide a stable, fixed-income investment.
• Higher interest earned than GICs or high-interest savings accounts.
• They can pay a monthly dividend, but they will be taxed outside of a tax sheltered account like a TFSA or RRSP.

Cons

• They earn lower interest than stocks or more volatile investments.
• You have to pay management fees on the investment.
• They may require a high minimum investment for some, putting them out of reach for first-time investors.

Good for: People who want to earn competitive rates and won’t need to access their savings right away.

Guaranteed investment certificates (GICs) are time deposits, meaning you agree to leave your money in the account for a set period. During that time, your money earns interest and, when the GIC matures, you typically can withdraw your savings or roll it into a new GIC. That sets these accounts apart from other types of savings accounts since there’s a time factor at work.

You can find GICs at traditional banks and online banks. Between the two, online banks tend to offer better interest rates. GIC terms typically range from as short as 30 days or as long as 60 months, but they can have higher terms even than that, with longer terms usually boasting higher rates—although not always, especially in a lower interest rate environment.

GICs are best for the money you know you won’t immediately need since banks can charge an early withdrawal penalty if you withdraw your savings before the maturity date. Creating a GIC ladder of multiple GICs with varying maturity dates can offer a work-around for this issue.

Pros

• GICs can offer above-average interest rates for savers pursuing short- or longer-term goals.
• There are typically no monthly maintenance fees involved with GIC accounts.
• GICs at online banks may offer lower initial deposit requirements.

Cons

• Withdrawing money from a GIC before its maturity date may trigger an early withdrawal penalty depending on whether its a cashable GIC or not.
• GICs at traditional banks tend to offer lower interest rates than online banks.
• Putting your savings into a longer-term GIC makes it harder to capitalize on future interest rate increases.

Good for: People who get paid in U.S. dollars, travel often or live in the U.S. for a significant period of time, like snowbirds.

U.S. dollar savings accounts are bank accounts offered at Canadian banks, whether brick-and-mortar or online-only, that allow you to save, invest or withdraw U.S. dollars. They are advantageous because they typically offer a better exchange rate than a currency exchange or a regular savings account when it comes to converting currency from U.S. to Canadian dollars.

You can also put a U.S. dollar investment vehicle into some U.S. dollar savings accounts, such as a U.S. dollar term deposit or a U.S. dollar ETF, among others.

Below are the pros and cons of U.S. dollar savings accounts:

Pros

• Save and invest U.S. dollars without needing a U.S. address or a U.S. bank.
• Get, or wait for, a more favourable exchange rate when converting your U.S. dollars to Canadian dollars.
• Place U.S. dollar investment vehicles into a U.S. dollar savings account and have an opportunity to grow your U.S. dollar investments without conversion fees.
• A low-risk opportunity to diversify your currency holdings.

Cons

• High transaction fees (not meant for day-to-day banking).
• Interac e-Transfers are unavailable and ATM withdrawals aren’t always available.
• If the Canadian dollar appreciates, you’ll lose some American dollars when converting back to Canadian.

Good for: People who want accounts tailored to specific savings goals.

Specialty savings accounts are designed to help you reach specific savings goals, rather than being a catch-all for money you don’t plan to spend. And in some cases, they can be intended for a specific type of person, rather than a savings goal.

For example, there are different types of savings accounts for people in different life stages and savings accounts that are tax-sheltered where the holder is not taxed on their growth, but may or may not be taxed on any withdrawals, depending on the stipulations that come with the account in question.  Here are just five of the most common examples:

• Kids’ savings accounts’
• Seniors’ savings accounts
• Tax-free savings accounts (TFSA)
• First-home savings account (FHSA)
• Student savings accounts

You can also set up different types of education savings accounts, including a registered education savings plan (RESP). This is a type of post-secondary education savings account that allows you to set aside money for higher education expenses on a tax-advantaged basis and with matching grants and bonds from the federal government.

Then there are different types of retirement savings accounts you could set up for yourself, including RRSPs and RRSP GICs. Meanwhile, you may also open an account designed to help you save for your first home. The new First-home Savings Account (FHSA) allows you to save up to $40,000 for the purchase of your first home ($4,000 per year) and then withdraw the funds tax-free.

Finally, there’s the TFSA, which allows you to save and withdraw money tax-free any time up to an annual contribution limit set by the Canadian Federal Government each year. In 2023 your total contribution limit is 88,000 and your annual one for the year is $6,500.

You should be able to find most of these accounts at banks, credit unions, brokerages or investment companies. Of course the FHSA is only available to those yet to purchase their first home.

Opening one or more specialty savings accounts may make sense if you have a singular purpose for saving money. Just keep in mind that there may be restrictions on how much you can contribute, what qualifies you for government grants or bonds that match your savings or when and how you can withdraw funds later.

Here are the pros and cons of specialty savings accounts:

Pros

• They can help you save money for a variety of specific financial goals.
• Specialty accounts can earn interest to help you grow your money, just like other savings accounts.
• You may pay low or no monthly maintenance fees depending on the account.
• You can hold your money within another investment like GICs mutual funds or stocks and have it still be in the specialty account.

Cons

• Some specialty accounts, such as  RESPs, TFSAs and RRSPs have strict tax rules for making withdrawals and contributions.
• The interest rates you earn for child savings accounts, student accounts or seniors savings accounts may be lower than high-yield or even regular savings accounts.
• Specialty accounts may have restrictions on who can open them.

Why Would You Put Money in a Savings Account?

Here are reasons why it can make sense to put money in a savings account:

• You can earn interest. Putting money into a savings account allows you to earn interest on your balance. Some chequing accounts pay interest, but many do not. Money left to sit in a non-interest-bearing chequing account doesn’t have a chance to grow.
• It can help you save and not spend. Having a savings account may help you avoid spending money that’s earmarked for a specific goal. Keeping all of your money in a chequing account, for example, could make it easier to spend money you intend to save.
• It can help with financial emergencies. Even if you don’t have a set savings goal, having a savings account can still make sense. Having money in a savings account can make it easier to pay bills and everyday expenses in case of an emergency—if you lose your job or your car breaks down, for example. This way, you don’t have to turn to a credit card or a high-interest loan. And if you don’t have to use your savings for an emergency, you can keep growing your money without having to worry about racking up debt.
• It can keep your cash safe. Keeping your money in a savings account also offers a measure of protection. If you were to keep cash at home, for instance, it could be stolen. Walking around with a wallet full of cash could also put you at risk of theft or loss. But it’s protected up to the total coverage limit when your money is in a savings account at a bank insured by the CDIC or  provincial credit union insured by a provincial deposit insurer. As of 2023, that limit is $100,000 per depositor, per account ownership type, per financial institution.

Bottom Line

When choosing a savings account, it’s important to remember that you don’t have to pick just one. Depending on what you want to achieve financially, you may decide to open multiple savings accounts, GIC accounts, money market funds or specialty accounts. To find the best account for your needs, consider your financial goals.