6 reasons why a high-interest savings account can help you fight inflation

Knowing where to put your savings can be a struggle.

Investing can lead to high returns, but make it harder to access your cash in a pinch. And on the other hand, while your standard savings account is always accessible, interest rates can be low. If you're looking for low risk, but hoping for some modest returns, high-interest savings accounts (HISAs) may be the answer.

Introduced to Canadians more than two decades ago, HISAs offer higher interest rates than your standard day-to-day savings accounts.

The Bank of Canada interest rate informs HISA rates. When the Bank of Canada raises rates, other lenders usually follow their lead. This is bad news if you have debt, but good news if you have money in the bank, as higher rates mean higher returns.

Even though HISAs typically pay significantly more interest than a chequing or savings account from a traditional bank, many people are hesitant to set one up.

Here’s what you need to know about HISAs, including how to set one up so you can start seeing your savings grow.

1. They pay high interest

The obvious reason to get a HISA is for the high interest that they pay. For example, digital banks such as EQ Bank and Simplii Financial currently offer HISAs that pay 3% interest or more.

While that may not seem like a lot, daily savings accounts typically pay next to nothing. Even then, you may be required to keep a minimum amount in the account before you start earning interest.

More financial institutions have started introducing their own HISAs, however, their interest rates are typically lower, around .30% to .50%.

When signing up for a high-interest savings account, watch for promotions such as an increased interest rate for three months on new deposits. Some savvy customers will constantly shuffle their money around from one bank or credit union to another to maximize their returns.

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2. There are typically no fees

The other reason it’s worth signing up for a HISA with a digital bank is that there are typically no monthly fees or minimum balance requirements. In addition, you’ll often get unlimited transactions, which include free Interac e-Transfers. If you normally make a lot of transactions, this can significantly reduce the fees you pay for your banking.

With savings accounts, many traditional banks no longer charge a monthly fee, but you may have a limited number of transactions unless you keep a minimum balance.

3. You can easily transfer funds

Whether you opt for a HISA with a digital bank, traditional bank or credit union, accessing your money is surprisingly easy. You can link your HISA directly to your bank accounts and transfer money as needed. That said, these types of transfers can sometimes take up to two business days to complete.

If you need access to cash immediately, you could take advantage of the free e-Transfers. Alternatively, a few digital banks, such as Simplii and Tangerine, offer debit cards so you can withdraw funds from ATMs.

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4. It’s a good place to hold your cash

A HISA is an ideal place to hold cash if you have short-term goals or are unsure what to do with your money right now.

A high-interest savings account might be a good place to:

• Build an emergency fund
• Save for a car or a down payment on a home
• Protect your savings from inflation
• Let your savings grow through interest

When you have short-term goals, keeping your money safe is essential. That’s why a HISA is the best place to put your money.

5. Your money is insured

If you open a HISA with a Canada Deposit Insurance Corporation (CDIC) member, your deposits are insured for up to $100,000 per eligible account. That means if your financial institution were to ever fail, you’d be able to get your money back in just a few days, thanks to CDIC insurance.

Eligible accounts include deposits held:

• In one name
• In more than one name (joint accounts)
• In a registered retirement savings plan (RRSP)
• In a registered retirement income fund (RRIF)
• In a tax-free savings account (TFSA)
• In a registered education savings plan (RESP)
• In a registered disability savings plan (RDSP)
• In a trust

That means you could have up to $800,000 in coverage for various accounts at a single bank. You could open up accounts at another financial institution if you need more coverage.

If you bank at a credit union, your deposits would also have insurance. The insurance coverage would fall under the regulatory authority overseeing the credit union in the province or territory you reside in.

6. They’re easy to set up

Many people don’t realize that setting up a HISA can be incredibly easy. To open an account online, you typically need the following requirements:

• You must be a Canadian resident
• You must be the age of majority in the province or territory in which you reside
• You have a Social Insurance Number
• You have an email address

Setting up your account is often done online and only takes a few minutes. You’ll likely also need to provide a photo ID and your mobile device number to confirm your identity.

Once your account is opened, you can link any external bank accounts by following the instructions in your account. It should only take a few days, so you’ll be set up in no time.