Types of Savings Accounts in Canada

For Canadians, there are many types of savings accounts available on the market. Not sure which is right for you?

We have you covered.

In this post, we outline the seven most common types of savings accounts in Canada and how they work. Let's dive right in.

How do savings accounts work?

When you put money in a savings account, it grows in value over time. With a savings account, you are lending money to a bank or credit union. In return, you earn a small interest rate.

You can withdraw funds from your savings account at any time. Some financial institutions may limit the number of withdrawals you make per month, but there is no limit to the amount you can deposit.

Because the primary objective of a savings account is to give account holders a way save money, most financial institutions do not issue debit cards or cheques that are only linked to your savings account. If you have both a savings and a chequing account at the same bank, you should be able to link your savings account to the debit card you received with your cheque account.

Keep in mind that you may be charged a fee each time you use your debit card to withdraw funds from your savings account. If your bank charges a fee for withdrawing funds from your savings account with a debit card, consider transferring the funds first to your chequing account.

Interest rates on savings accounts differ from one financial institution to the next. Interest is compounded in savings accounts, which means you get interest on interest earned as well as contributions. The interest could accrue quarterly, monthly, or daily, depending on your bank.

Find the best rates

Compare quotes from Canada's top life insurance companies in no time.

Compare Rates

Basic savings account 

You earn a low interest rate with a basic savings account and may incur a fee if the account balance falls below a certain limit. However, the minimum account balance requirements are usually low, and some banks and credit unions have no minimum requirements. 

Youth savings account 

Designed for youth 18 years of age and under, youth savings accounts come with very few, if any, fees associated with them. Also, most banks offer unlimited or a large number of transactions per month. Generally, the interest is calculated daily and paid monthly. 

Youth savings accounts in Canada work pretty much the same way as bank accounts for adults, but these accounts require an adult to be listed as a joint account owner. The joint account holder can deposit or withdraw money as they deem fit and receive regular statements from the bank.  

High interest savings account 

Simply put, a high interest savings account offers a higher interest rate than other savings accounts.

How much more? That depends on various factors.

For example, some financial institutions may offer a moderate interest rate in exchange for no minimum balance. Some others may offer a better-than-average interest rate, but will charge a penalty if you do not maintain a minimum balance. 

Generally, the annual interest rates offered by high interest savings accounts in Canada, at the time of writing, range from 2% - 4.5%. 

Registered retirement savings account (RRSP)

An RRSP is a registered savings account that helps you save money for your retirement. Funds in an RRSP grow on a tax-deferred basis, meaning you will not have to pay tax on investment gains until you withdraw. This way you can invest more money and accumulate more wealth. You will also likely pay less tax on the investment gains because. By the time you reach retirement, you will likely be in a lower tax bracket than today. But that is not all. An RRSP also helps lower your present tax bill, since contributions made to RRSPs are deductible from taxable income. 

You can create an RRSP if you: 

• have an income
• file income taxes
• are a Canadian resident  
• are aged 71 years or under.

There is no minimum age for making contributions to an RRSP, but only those who are aged 18 and above can contribute more than $2,000. You can make contributions to an RRSP up to December 31 of the year you turn 71. 

Registered Education Savings Plan (RESP) 

An RESP is a tax-free savings account designed to help you save for a child’s or a grandchild’s post-secondary education. Contributions to an RESP can be made any time, and there are no annual contributions. However, you can contribute up to $50,000 per child. RESP contributions can be made for a maximum of 31 years. 

RESP contributions will not lower your tax bill, but any investment income you earn will not be taxed until it is withdrawn. Also, the Canadian government makes contributions to an RESP through the Canada Education Savings Grant (CESG). The federal government contributes 20% of what you deposit each year, up to an annual maximum of $500 a year. The lifetime maximum limit for the government’s contribution for a child is $7,200. 

Registered Disability Savings Plan (RDSP)

An RDSP is a registered savings plan designed for long-term financial security of Canadians living with disabilities. Money in the RDSP grows tax-deferred, meaning you pay tax on any income the RDSP earns only when you withdraw it. If you are an RDSP holder, you are eligible for two government grants: 

• Canadian Disability Savings Grant (CDSG). Depending on your family’s income and how much money is put into your RDSP, you can receive a grant of up to $70,000 over your lifetime. In order to receive this grant, you must contribute to your RDSP.
• Canada Disability Savings Bond (CDSB). This grant is reserved for low-income individuals. You do not need to contribute to your RDSP but must have an RDSP account in your name. The federal government will contribute up to a maximum of $20,000 in the RDSP over your lifetime. 

Anyone can contribute to a RDSP as long as they have the beneficiary’s written consent. However, RDSP contributions are not tax-deductible. For example, if your spouse deposits $700 in your RDSP in a particular year, he or she will have to report this $700 as taxable income. You can use your RDSP funds however you like.

Tax-Free Savings Account (TFSA)

A TFSA is a savings vehicle that allows Canadians to tax-shelter their money. At present, the contribution limit to a TFSA is $6,000 a year, but the federal government reviews this limit every year. Others cannot make contributions to your TFSA.

You can open a TFSA if you:

• are a Canadian resident
• are 18 years of age or older
• have a social insurance number (SIN)

In your TFSA, you can keep eligible investments including cash, mutual funds, equities, and bonds. A TFSA is similar to an RRSP in that it allows you to make withdrawals without paying tax on interest, capital gains, or dividends generated. You would also not have to record the withdrawn amount as income when filing your taxes.

It is entirely up to you how you spend your TFSA funds. Some people use it for a down payment or other short-term goals, but others use it for long-term purposes such as retirement preparation.

The bottom line

We covered the types of savings accounts in Canada, with each offering unique benefits. Picking the right type of savings account can help you save money for future needs and goals in the most efficient way. If you're looking for other ways to invest for the future, consider talking to a Dundas Life licensed advisor about life insurance options today.