Saving Options

Not all savings accounts are the same. Different banks offer different interest rates. And individual banks typically offer a number of savings accounts options to choose from.

Before opening a savings account it's a good idea to figure out how you'll be using it. Ask yourself:

How long you'll be keeping your money in the account.
How often you'll want to withdraw money.
How much money you'll keep in the account.

All of these factors can have an impact on how much interest you can earn. A simple rule to keep in mind is that time is money. The longer you're willing to leave your money alone in an account the higher interest you're likely to earn. Similarly, banks tend to offer higher interest if you're willing to keep a minimum balance. These can range from $100 to thousands of dollars.

Types of savings accounts

While there are many different savings options available, they all fall into four main categories.

Basic bank savings accounts offer the lowest interest rates, usually about 2%. They have few restrictions on access to your money, and they tend not to require minimum balances.
High yield savings accounts are like basic accounts, but they have more restrictions on how often withdrawals can be made and typically require a minimum balance. These accounts may offer 3 or 4% interest.
Money market accounts are like high-yield accounts, but they're tied to federal market indicators, such as the prime interest rate.
Online savings accounts are a lot like basic bank accounts, but they offer higher interest rates because they operate online and don't have the overhead that standard banks have.
Credit Unions. These are like banks, but their customers own them. They tend to offer higher interest on savings.

Choosing a Savings Account

If you want to save some money for your short-term needs, a savings account might be your best bet.

With this type of account, money that stays untouched earns interest. The amount of interest offered varies, depending on the bank and type of account you choose, and interest rates in general.

Interest is calculated in one of three ways: daily, monthly or every six months. The bank pays interest to accounts either once a month or once every six months.

Because of these variables, and other factors, the amount you earn on your savings can fluctuate.

Factors that determine the dollar yield on an account:

Current interest rates
How interest is calculated on an account (ie daily, monthly or every six months)
When interest is paid on an account (either once a month or once every six months)

The following factors reduce money earned and can even turn it into a loss
Fees, charges and penalties. These are usually based on minimum balance requirements or transaction fees. The maintenance of a certain balance in the account. Many accounts don't pay any interest at all unless a certain minimum balance is achieved and maintained for a set period of time. Generally speaking, the higher the balance, the higher the rate earned.

Canada Deposit Insurance Company Insures Your Savings

You probably don't know it, but the Canada Deposit Insurance Corporation (CDIC) has got your back.

The CDIC is a federal Crown Corporation created in 1967 to provide deposit insurance and contribute to the stability of Canada's financial system. Simply put, the CDIC protects the money – and the interest earned on it – that you deposit in the bank (provided it's a CDIC member). CDIC provides basic deposit insurance coverage up to $100,000 per person in each member institution. That means, if the financial institution should experience a failure, your money is protected.

The CDIC Insures:

Savings and chequing accounts
Term deposits, such as GICs and debentures issued by loan companies
Money orders and drafts
Certified drafts and cheques
Travellers' cheques issued by its member institutions

CDs

If you don't mind leaving your money alone for a longer period of time – from several months to several years – consider taking out a certificate of deposit, or CD. These often offer the highest interest of any savings option a bank allows.

Unlike regular bank accounts, you can't withdraw your money whenever you want – not without paying a steep penalty. But they come with no risk and no fees.

There are several kinds of CDs:

Stock-indexed CDs are based on the stock market.
Callable CDs have higher rates and are long-term, as long as 10-15 years. However, the bank may "call" the account if interest rates drop.
Global CDs are tied to currency rates.