What is a Savings Account?

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Alexandre Desoutter updated on 15 May 2024

A basic savings account is an account held at a bank or other financial institution that pays interest on the money you deposit.

They typically offer low-interest rates and do not have chequing capabilities or a debit card linked to them. Additionally, they may also have withdrawal limitations compared to a chequing account. These features make them an ideal option for your short-term saving goals, such as saving up for a vacation or setting aside money for a rainy day fund.

Anything to do with finances can seem overwhelming and a savings account may seem like one more thing to figure out, but they’re quite simple. Here’s some information that can help you figure out the best savings accounts Canada has to offer.

How do savings accounts work?

At its most simple, a savings account is a place for you to hold your money in a safe and liquid way. Below we explore interest rates and fees on savings accounts:

Interest rates

One of the distinguishing factors of savings accounts is that they pay interest on the money deposited. It is usually not a very high rate but is still higher than a chequing account. The interest will be deposited directly into the account every period, depending on how often your particular account pays out interest; typically either monthly or quarterly. Interest rates do change, but banks will usually hold them at a certain rate for a certain period. Sometimes institutions will offer a promotional interest rate in which the rate will be fixed or higher than normal for a certain amount of time.

It is also common for banks to offer several different accounts with different interest rate offerings. For example, BMO, TD and Scotiabank, just to name a few, each offers several types of accounts that have slightly different terms.


Banks typically do not charge monthly service fees on savings accounts, but they do sometimes charge fees on withdrawals or transfers. They may also require a minimum deposit to open an account. Banks sometimes limit the number of transactions you can make with a savings account each month, or offer one free transfer per month and charge a fee on any subsequent transactions. It is important to be aware of what kind of fees your bank charges on transactions and whether they limit the number of transactions you can make each month.

Our tool at the top of the page will help you compare the different interest rates banks offer and what kind of fees they charge.

How do you open a savings account?

It’s fairly simple to open a savings account. In most cases, you can simply go into your bank, provide some basic personal information and documents and you’re good to go. And now many banks offer the option to set up a savings account completely online.

Here are some of the things you will typically need to open a savings account:

  • a Canadian address
  • a social insurance number
  • Proof that you are one of the following: a Canadian citizen, resident, or present on a work or study visa.

If opening an account online you will likely need to provide a Canadian phone number and a valid email.

What is the difference between a checking and savings accounts?

The main difference between a savings and a chequing account is that there are no chequing abilities and no debit card linked to a savings account. This means that you cannot pay directly out of a savings account, though banks will often offer one free external transfer per month. The other important difference is that chequing accounts earn little to no interest, compared to savings accounts which offer slightly higher interest rates.

Here is a quick comparison of the two:

Chequing accounts:

  • Unlimited transactions and access to your money with a debit card or chequebook
  • Useful for day-to-day purchases or payments
  • Can withdraw cash from ATMs
  • Earns little to no interest
  • Difficult to track savings goals

Savings accounts:

  • Earns interest
  • Useful for achieving savings goals, such as saving up for large purchases
  • A limited number of transactions per month or have fees associated with transactions
  • ATM withdrawals may not be possible or be subject to higher fees

What types of savings accounts exist?

In terms of basic savings accounts, banks usually have several different options that all do essentially the same thing, but differ slightly in their terms. For example, one might offer a slightly higher interest rate but require a minimum deposit, or offer scaled interest depending on how much money is deposited or how long it is held in the account. It’s a good idea to do a comparison of all the options to find out which one is right for your needs.

Outside of your basic savings account, there are a few other main types of savings accounts in Canada. They are high-interest savings accounts, TFSA, or tax-free savings accounts, registered accounts with the Canadian government, youth savings accounts, and USD savings accounts.

Here is a quick rundown of each:

Account TypeAbout
Basic savings accounts
Low-interest rate, but high liquidity and access to your money
High-yield savings accounts
Higher interest, but offer less liquidity for your money
Tax-free savings vehicle for investments with an annual contribution limit
Registered savings accounts: retirement, education, and disability
Savings and investment account registered with the Canadian government for specific purposes, tax-free until withdrawal
Children's savings accounts
Savings account specifically for youth, typically with an age limit
USD savings accounts
Deposit, withdraw and save your USD
Types of savings accounts

If you are interested in learning more specifics about the different options and comparing savings accounts, you can do so above! Sort and shop accounts by currency, account type, interest rate and fees.

What are the benefits of having a savings account?

A savings account is a great place to save up for big purchases or start building up that emergency fund. They offer a lot of liquidity, making them ideal for short-term savings goals. You may not have a very high rate of return compared to other types of investment, but you have much more access to your money than an investment or other savings mechanisms.

If you know you won’t need to spend the money in your savings in the short term, consider investing it instead. There are safe savings mechanisms such as high-interest savings accounts or GICs (Guaranteed Investment Certificates) that yield higher interest. Or, there are higher return, but higher risk investments such as mutual funds, ETFs (Exchange Traded Funds), cryptocurrency or stocks.

What is a good interest rate for a savings account?

The typical savings account interest rate in Canada on a basic savings account can be anywhere from 0.01% to 0.05%.

However, many banks offer different interest rates depending on which account you sign up for, how much money you have in your account, or how long you keep your money in your account. Some accounts may offer anywhere from 0.05% to 0.8% during promotional periods.

For example, BMO’s Savings Builder Account offers a base interest rate of 0.05% but offers a bonus interest rate of 0.3% for every month that you deposit more than $200 into the account, meaning you could earn up to 0.35% interest on your money in this account. Or the Scotia Bank Momentum Plus Savings Account, your money will earn a base interest of 0.05% and up to an additional 0.75% with their premium period interest if you meet the qualifications.

Here’s a breakdown of a few examples*:

AccountBase RatePromotional Rate
BMO Savings Builder
0.05%+0.3% every month $200 or more is deposited
Scotiabank Momentum Plus
0.05%Up to +0.75% in the premium period as long as no debit transaction has occurred within the Premium Period
TD ePremium Savings Account
0.00%0.1% on any amount over $10,000
RBC Day to Day Savings
0.005%0.01% for balances over $1,000
Tangerine Savings Account
0.1%No promotional offer
CBIC eAdvantage Savings Account
0.05%Bonus interest for 4 months after opening the account, +0.25% every month $200 or more is deposited up to $200,000
Popular savings account examples

*Note that this is only a comparison of interest rates, and does not take into account other factors, such as account minimums, monthly fees or transaction fees. Our comparison tool at the top of the page can help you to compare those additional factors.

What is the minimum balance on a savings account?

Some, but not all, banks require minimum balances for their savings accounts. You will need to check the specifics of your individual account and make sure that it works for you.

This means that you must keep a minimum amount of money in the account to either avoid fees or qualify for a specific interest rate. Typically, if you drop below the minimum balance requirement, you will stop earning or drop to a lower interest rate, or have to pay a fee. However, some banks advertise no minimum balance as a selling point for their accounts, such as the Tangerine Savings Account.

How do you calculate interest on a savings account?

Interest can be calculated in many different ways. It can be calculated solely on the principal amount deposited into the account or on any amount deposited over the minimum requirement, or on a compound basis. The most common way to calculate it is on a compound basis, which means interest is calculated on the total amount in your account; so your interest earns interest.

However, this doesn’t mean that the interest is added to your total every day; you’ll need to check how often the bank calculates and pays the interest. Many banks calculate daily and payout monthly, so this would mean that the interest is added to your principal monthly and begins to accrue interest for the next month. It also means that if you withdraw money during the month since the interest is calculated daily, this affects how much interest you earn for the month.

Why open an online savings account?

A lot of banks now offer fully online savings accounts. These can be a great option for their simplicity and accessibility. You can open them anywhere and manage your money from everywhere, as long as you have an internet connection. However, on the downside, you do lose the in-person connection and the ease of opening your account with a bank representative who can explain things clearly and answer questions. It may take longer to search out answers than simply going into your bank and asking someone in-person.

Here is a quick summary of the pros and cons of opening an online savings account.


  • Flexibility in opening your account from anywhere at any time
  • Easy access to your funds
  • Easily manage your funds and quickly transfer between multiple accounts held at the same institution


  • Lacks face-to-face connection
  • Can be easier and simpler to get questions answered in person

What is a high-yield savings account?

If you’re looking into savings accounts, you have probably heard about high-yield or high-interest savings accounts. These are savings accounts that offer a higher interest rate than a basic savings account. In principle, they operate the same in terms of being a great place to build up your money and achieve savings goals, but their terms and requirements tend to differ because of their higher rate.

They typically do not offer as much liquidity and have a higher minimum to qualify for the higher interest rate. This means that you are not able to access your money as frequently, making them a better option if you’re looking for a long-term savings option. If you know that you are not going to need to touch your money for a certain period of time and are looking for a secure place to park it where it can earn at a slightly higher rate, this might be a great option for you.

TFSA vs basic savings accounts?

A tax-free savings account, or TFSA, is a type of savings account in Canada in which your income from that account is not taxed. With a basic savings account, any interest you earn from the account is considered income and is taxed as such.

While called a savings account, a TFSA is actually quite different from your basic savings account because a TFSA is not just a place where you deposit money. It can hold many types of investments, such as mutual funds, securities, and bonds. This makes it one of Canada's most popular investment tools. TFSAs are:

  • A savings vehicle in which any income earned including interest, capital gains, and dividends cannot be taxed
  • Can hold other types of investments, such as mutual funds, securities, and bonds
  • Has a contribution limit; in 2022 this is $6,000 per year

Good to know

Interested to learn more? We have a dedicated guide to TFSAs. Start saving better.

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Alexandre Desoutter

Alexandre Desoutter has been working as editor-in-chief and head of press relations at HelloSafe since June 2020. A graduate of Sciences Po Grenoble, he worked as a journalist for several years in French media, and continues to collaborate as a as a contributor to several publications.