Savings accounts are handy for short-term savings.
- You can deposit money into a savings account at almost any financial institution in Canada, such as a bank, credit union, caisse populaire or trust company. (For details, see the Banking module.)
- A savings account will keep your savings safe and pay a little interest. (Many accounts are guaranteed in case the financial institution fails. See the Banking module for details.)
- You can take your money out whenever you need it, but savings accounts are not as flexible as chequing accounts. There may be limits on when you can withdraw money, and there may be extra charges if you use an automated teller machine (ATM) or write cheques on a savings account.
Use the checklist below to mark what features are important to you in a savings account.
|These features are important to me in a savings account:
|Pays higher interest than other similar accounts
|Charges lower service fees than other similar accounts
|Calculates interest on daily balance (instead of the lowest balance during the month)
|Allows use of features such as debit cards, direct payment, pre-authorized debits and cheques
|Allows access to account by automated teller machine, Internet or phone
|Allows transfer directly to another account at another institution
|Transfers to another account within one day
|Has a convenient location
The Financial Consumer Agency of Canada’s online Savings Account Selector Tool describes the main features of the savings accounts in your province or territory. Go to the Account Comparison Tool to compare your account with others in your province, or to find an account with the services you want.
When you’re looking for a savings account, remember:
- Shop around. Accounts are not all the same. Choose one that pays the best interest rate and has the features you need.
- Switch to another financial institution if it offers you what you want. Don’t be tied down without a good reason.
- An account that lets you transfer money to your chequing account without cost will give you quick access to your money.
- Term deposits and guaranteed investment certificates (GICs) are different names for similar products. Both are a type of deposit that you make with a financial institution, usually for a fixed period of time. If you need to withdraw the money before the end of the fixed term, the institution may refuse or may charge a penalty.
- Most pay a fixed rate of interest. For example, you deposit $1,000 for a one-year term at 3.5 percent interest. At the end of one year, you can withdraw the amount plus $35 interest.
- Term deposits and GICs usually pay higher interest than savings accounts when you leave the money for the entire fixed term.
- Often there is a minimum amount you have to deposit, although for some term deposits the minimum may be just a few hundred dollars.
- Term deposits and GICs have a variety of terms and interest rates. Ask questions to make sure you understand what the limits are before you put money into one.
- You can deposit money in a term deposit or GIC at most financial institutions. Some other institutions, such as investment dealers and life insurance companies, may also accept term deposits.
- Some term deposits and GICs offer special features, such as rates that rise over time or that change with stock market values. Be sure you understand what you will receive on your deposit and any limits on the deposit. Shop around to find the best interest rate for the length and type of term you want.
- For more information on choosing investments, see the Investing module.
- Government savings bonds are guaranteed investments issued by the federal or provincial governments. They usually pay a fixed rate of interest for a fixed period of time.
- The Government of Canada sells Canada Savings Bonds and Canada Premium Bonds.
- Provincial governments also offer high quality bonds.
- The government that issues the bond guarantees the full value of the bond and the interest, no matter how much you invest.
- You can cash in government savings bonds with no charge at most financial institutions. Some can be cashed in at any time, but you may lose any interest earned if you cash them in before their due date.
- Most financial institutions sell government savings bonds, but they may be available only for a few months of the year. Many employers also have an automatic payroll deduction plan to help their employees buy government savings bonds.
- For full details, search for the savings bond website of your federal or provincial government (e.g., “Canada savings bond” or “Quebec savings bond”).
- Some types of savings plans offer extra benefits: they avoid or defer some of the taxes you pay. They are generally called registered savings plans because they must be registered with the Canada Revenue Agency in order to qualify for tax benefits.
- There are four main types of savings plans with tax benefits:
Tax-Free Savings Accounts (TFSAs) let you put money in a registered plan, and any income the plan earns is tax-free.
- You can put up to $6,000 in a TFSA without paying tax on the earnings for the year 2022. If you did not contribute the maximum in previous years, you may be able to contribute more.
- You can take money out of a TFSA and put it back again the next year, but some limitations do apply.
- A TFSA does not affect money you receive from other government sources such as GST Credit or Old Age Security.
- A TFSA can include most common types of investments; however, there are some restrictions. Returns may be guaranteed or they may not.
- For details, go to the Canada Revenue Agency’s information on The Tax-Free Savings Account.
Registered Retirement Savings Plans (RRSPs) let you put money into a registered plan and avoid paying taxes on the money you deposit, as well as any earnings it produces until you take it out of the plan.
- When you put money into an RRSP, you can deduct that amount from your taxable income, so you don’t have to pay income taxes on it until you take it out of the registered plan. You may pay lower taxes on the money in the plan when you take it out in the future, as most people enter a lower tax bracket after retirement.
- An RRSP can include most common types of investment. Some plans are guaranteed by the government, like bank deposits. The returns may also be guaranteed by the financial institution. However, some types of investments can lose money, so you must find out how each investment works. For more information, see the Investing module.
- The maximum amount you can put into an RRSP is 18 percent of your employment income, up to a limit. For example, the maximum limit for 2022 was $29,210. Your individual limit is listed on the Notice of Assessment that the Canada Revenue Agency sends you when you file your annual tax return. If you did not contribute the maximum in previous years, you may be able to contribute more.
- RRSPs are designed to help you save money for your retirement. You can withdraw money temporarily for certain purposes, such as home buying and education. However, if you take your money out of the plan for any other reason before you retire, part of it will be withheld for taxes.
- Money you receive from an RRSP may reduce the money you can receive from government income support programs. Discuss your retirement income plans with a financial adviser before you contribute to RRSPs.
- For details, go to the Canada Revenue Agency’s information on RRSPs and related plans.
During the first sixty days of the year, you can put money in your RRSP to get a tax deduction for the previous year. But don’t wait until February. Make regular monthly contributions and your savings will start to grow sooner.
Registered Education Savings Plans (RESPs) let you put money into a registered plan to save for a child’s education.
- When a student continues school after high school, he or she can withdraw the money including any earnings.
- Money in an RESP is eligible for grants from the Government of Canada and the province of Quebec.
- There’s no yearly limit to the amount you can put into an RESP, but you can’t contribute more than $50,000 in a lifetime for a single person.
- You may be able to take out the money you paid into an RESP tax-free, but you will have to move it into an RRSP or pay taxes on any income the RESP earns (and return any government grants).
- Often a student will pay little or no income tax on the income that the plan earns.
- For details, go to Employment and Social Development Canada’s information on Registered Education Savings Plans.
- Quebec also has a student savings plan. For information, go to:
Registered Disability Savings Plans (RDSPs) let you put money into a registered plan to support a person with a disability.
- When someone with a disability needs money, he or she can withdraw the savings and any earnings they have produced.
- Money in an RDSP is eligible for grants from the Government of Canada.
- There’s no yearly limit to the amount you can put into an RDSP, but you can’t contribute more than $200,000 in a lifetime for a single person.
- You can take out the money you paid into an RDSP tax-free, but you will have to pay taxes on any income the RDSP earns (and return any government grants).
- Often a person with a disability will pay little or no income tax on the income that the plan earns.
- For details, go to Employment and Social Development Canada’s information on the Registered Disability Savings Plan.
Many conditions apply to registered savings plans. Be sure you understand them so you can decide if they are the best way for you to meet your savings goals. Find out what fees and conditions apply. Some key questions are:
- Are there rules about how much I can save each year?
- What are the conditions and the risks? For example, what happens if a child for whom I start an RESP does not go to post-secondary school?
- When do I contribute?
- Who will invest my money?
- How fast will my money grow?
- How much will this plan cost?
- What happens if my plans change? For example, what happens if I need to take money out of the plan?
- Will income from the plan affect my other sources of future income?
For more consumer tips, read Before you sign any contract: 10 things you need to know by the Financial Consumer Agency of Canada.
See the video, Saving with registered plans, for an introduction to savings.
- Some of the main savings vehicles are:
- savings accounts
- term deposits and guaranteed investment certificates
- government savings bonds
- registered savings plans such as Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), Registered Education Savings Plans (RESPs), and Registered Disability Savings Plans (RDSPs).
- You can choose from many different plans for each type of savings vehicle, which provide different rates of return. You should also consider other factors, such as deposit insurance coverage and tax implications. Shop around to find the best return for your needs.
- Each type of savings vehicle has costs and limitations. Check them carefully to be sure you understand the terms and that they provide what you need.
At the end of the module, you will find an Action plan. This is a tool that you can use to track your progress and take the next steps to manage your saving successfully in the future. Use the action plan as a roadmap for financial action!