What is a HISA?
A high-interest savings account (HISA) is a deposit account that pays a premium interest rate, higher than a typical savings account. The interest rates on HISAs range from 1.50% to 4.00% depending on the bank or financial institution. Rates on regular savings accounts are typically less than 1%. For example, TD’s Every Day Savings Account, RBC’s Day to Day Savings Account, and Scotiabank’s Money Master Savings Account all have an interest rate of 0.01%. For the above RBC account, the rate drops to 0.005% if your balance is under $1,000. Digital banks like EQ Bank offer a hybrid Personal Account with a higher base interest rate of 2.75%.
A HISA can be a good option if you’re a lower-risk investor looking to earn a competitive interest rate while keeping your money safe and accessible. Think of a HISA as a fuel-efficient car and a regular savings account as a gas-guzzling truck. Both can get you to your destination, but one offers better value on the fuel/money you put into the vehicle. However, like with cars, your mileage will vary greatly depending on how much you invest, your investing goals and time horizon.
Essentially, a high-interest savings account will offer you a better return over time on your money instead of a traditional savings account.
How does a HISA work?
A high-interest savings account works by paying you a premium rate of interest for minimum account transactions. Interest rates within HISAs are usually variable, meaning the rate can change over time by going up or down depending on market conditions. The rate is set either by the Bank of Canada or by banks and financial institutions.
The account functions like a regular savings account, but interest rates are much higher. Like with regular savings accounts, you can use it for everyday transactions, but some HISA accounts will charge monthly fees.
Opening an HISA can be a good investment option if you’ve already maxed out your TFSA and RRSP contributions for this year and are looking for a place to park your extra cash. Interest on high-interest savings accounts is usually earned daily and paid out monthly. The interest earned is on the balance you keep within your account.
An HISA is also a good option for people looking to build an emergency fund, as it’s a low-risk way to access your money anytime you need it. Generally, it’s recommended by the Government of Canada to save three to six months of your regular expenses, and a HISA acts as a useful tool to help you do just that.
The versatility of a high-interest savings account doesn’t end there, as you can use the account for almost any form of short- to medium-term savings with minimum risk. Unlike other investments like stocks, mutual funds, or ETFs, the risk of using an HISA is minimal; your funds are safe, secure and available to you at any time.
Five no-fee HISAs offering the best interest rates right now
Most banks and financial institutions offer HISAs, so it’s a good idea to shop around and get the best rate. Use our table below as a guide to find the best HISAs with no fees; rates are listed from highest to lowest:
| High-interest savings account (HISA) | HISA rate | Fees for Extra services |
|---|---|---|
| Simplii Financial High Interest Savings Account | Earn 4.60% interest on eligible deposits up to $200,000 for the first five months (Regular rates of 0.30% to 1%) |
None |
| Tangerine Savings Account | 4.50% for the first 5 months to a maximum of $1,000,000 (Regular rate of 0.30%) |
$2 for paper statements, $5 for reprinted statements and tax slips and receipts. |
| Oaken Financial Savings Account | 2.80% | None |
| EQ Bank Personal Account | 2.75% | None |
| Neo Savings Account | 2.00%-2.75% (depending on account balance) |
None. |
Compare the best no-fee HISAs in Canada
While higher interest rates are appealing, they only last for a limited time. The advantage is that you’ll earn more interest on your balance, but this is limited, lasting only a few months. So it’s best to take full advantage of the promotional interest rate before it returns to normal.
When looking at promotions, make sure to read the fine print and find what the actual interest rate you’ll get once the promotional period ends. Make sure to do the math and see if opening an account with a promotional rate is worth it in the long run. Sometimes a stronger base interest rate earns you more interest in the long run than a promotional rate.
How much could you earn with a high-interest savings account
There isn’t one universal amount you’ll earn with a high-interest savings account. Like with many forms of investing, it will depend on different factors like how much you invest, how often you invest and the interest rate. Finding out your investment goals is a good first step in determining whether or not you should open a HISA.
In short, how much you’ll earn with a high-interest savings account will depend on:
- Account balance
- Account fees
- Interest rate
- Time you keep the cash in your account
How to pick the right high-interest savings account
With many banks and financial institutions now offering high-interest savings accounts, it can be confusing to know what to look for. Here are some general things you should compare when choosing a HISA:
- Interest rate: While high interest rates are better, they are not the be-all and end-all; promotional rates expire, but having a strong longer-term interest rate will be better for your savings overall.
- Fees: Always check and see if your high-interest savings account charges fees, as some charge fees for transactions and withdrawals. The fewer fees, the more money you’ll save!
- Insurance: Be sure to check whether your deposits are protected in the event of a bank or financial institution failure. The Canada Deposit Insurance Corporation (CDIC) covers up to $100,000 for each account. While most banks have this insurance, it’s still a good idea to double-check if this is offered.
- Conditions: Some HISAs will have conditions on withdrawals, minimum balances and transfers.
Bottom line: should you open a high-interest savings account?
For everyday banking needs, a chequing account is the preferred option, and for saving smaller amounts, a savings account is also a good option. If you have a larger sum of money and want to earn interest on that cash, then a high-interest savings account is the best option. A HISA is also a good choice if you’re looking to build an emergency fund or save for a down payment on a home.
Whether you should open a HISA will also depend on your saving and investing goals. But overall, the high-interest savings account remains a useful tool to help you towards your short- and medium-term savings.
