Update: Online bank ING Direct (read my ING Direct Review) offers a competitive interest rate along with a $25 bonus directly into your account when you register with an “orange key” code – Note that the bonus requires a minimum deposit of $100 with the initial registration cheque.
I’m a HUGE fan of the high interest rate savings accounts, especially those with no fees. Of all the accounts that I have reviewed, my pick is the PC Financial Interest PLUS Savings account. This account requires an account minimum of $1000 but gives you a competitive interest rate + anniversary bonuses. Don’t confuse this with the Interest First savings account, as the interest is slightly lower. This account does have its advantages however as it doesn’t require a minimum balance of $1000.
What I like about PC Financial is that everything is FREE (more free financial stuff here). Being as frugal as I am, I love free. :) I have a chequing account with them also and the cheques are free with no minimum balance. There is also no charge to transfer money between banks. For example, my main chequing account is with CIBC, so I Pay Myself First every two weeks, which goes directly into my PC Savings account. This can be programmed to withdraw automatically every two weeks and it works wonders.
If you don’t currently have a high interest savings account, there is a comprehensive review on most of the high rate savings accounts available in Canada on RedFlagDeals.com. The review includes a field that will calculate the interest on your savings balance. It’s a great function which will help you decide which savings account to go with.
After surfing through some of the savings accounts information pages, listed below are the current interest rates. I’ve also included direct links to each of the institutions in case you want to do further research. I don’t have any experience with ICICI bank, but it seems that they are extremely competitive with their interest rates and often on top of the pack.
Here is a list of some of the more popular high interest rate savings accounts available to Canadians (sorted by highest rate):
Rates updated as of July 28, 2009
- Achieva Financial: 1.85%
- Outlook Financial: 1.50%
- ICICI Bank: 1.40%
- ING Direct (ING Direct Review) 1.20% (use orange key code (click here for code) for $25 bonus – requires deposit of $100 with initial cheque)
- Manulife Bank: 1.10%
- Citizens Bank: 1.00%
- PC Financial Interest PLUS: 0.75% + annual bonus
- Altamira: 0.75%
- HSBC: 0.75%
- RBC High Interest eSavings: 0.75%
- E-Trade Cash Optimizer Account: ?
The biggest downside of these accounts is that interest is 100% taxable. This means that my savings of 26k earning 4% = $1000/year interest that will be taxed at my marginal tax rate. Boo on that. Perhaps it would be more efficient to move some of my savings into my investment account and purchase some dividend paying stocks.
Also note that these accounts are insured by CDIC which insures the account for up to $100,000. If you have more than $100,000 cash, you may want to put the money into a discount brokerage account instead where the cash will be protected up to $1,000,000.
Confused about all the tax talk? Stay tuned, i’ll post later about How Canadian Taxes Work.