What Is a Savings Account?

Various savings accounts exist and operate differently, learn which one
is right for you, store your money in a safe place and earn a decent interest
rate to boot.

A savings account is just the account to help you get there. Next to chequing accounts, savings bank accounts are the most basic accounts out there. With a savings account, you can do many of the same things as a chequing account, such as depositing and withdrawing money from an ABM and online banking. However, savings accounts do have limitations. You usually can’t write cheques and there may be a delay in accessing your money when you need it. 


In this article we’ll look at what is a savings account and how does it work, the pros and cons of savings accounts and best practices when using a savings account. After reading this article, you’ll be well-equipped with the knowledge you need to choose the savings account that’s right for you.

So What is a Savings Account?

A savings account is a safe place to store your money and earn a decent interest rate to boot. After chequing accounts, savings accounts are the second most basic bank account. Savings accounts are quite common in Canada. Most banks and credit unions offer them.


Although most banks that offer savings accounts won’t allow you to write cheques, savings accounts share many of the same features you’d expect from a chequing account, including ABM transactions, direct deposit, online banking and mobile cheque deposit.


It’s best to use your savings account for money you don’t plan to use in the short-term. Your money will be out of sight, out of mind, so you’re less tempted to spend it and you’ll almost always earn a higher interest rate than you would with a chequing account. It’s a win-win situation.

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Unlike chequing accounts which are mostly meant to be transactional accounts, savings accounts are meant to be short-term investment vehicles for you to sock away your money and earn some interest on it. (You’ll earn interest based on the balance in your savings account.) Savings accounts are perfect for saving toward short-term and long-term financial goals, such as a family vacation, new furniture, a new vehicle and the down payment for a home.

What is a savings account?

Although most Canadians deposit their paycheque into their chequing account, there’s nothing stopping you from depositing your paycheque or a portion of it into your savings account. By doing that your money is out of sight, out of mind and you’ll be less tempted to spend it. By making savings a priority, you can also reach financial goals sooner.


In terms of liquidity, although the money in your savings account usually isn’t as easy to access as your chequing account, depending on the financial institution you bank with, it can still be pretty easy to access. If you have a savings account at a different financial institution, there can be a delay in the funds from your chequing account transferring to your savings account and vice-versa. However, if your savings account is at the same financial institution as your chequing account, oftentimes you can transfer funds immediately between the two accounts with no extra effort.


Storing your money in a savings account offers you some peace of mind as well. If anything were to happen to the bank or credit union where your chequing account is at, CDIC protects up to $100,000 of your money.

How a Savings Account Works

Here are some key features of savings accounts to be aware of: 


You’re usually able to deposit your money at any given time into a savings account, although some savings accounts have minimum deposit amounts in order to be set up.


Savings accounts are pretty accessible, but not as accessible as chequing accounts. You may be able to access the funds from your savings account in many of the same ways as a chequing account – using your debit card, withdrawing money from an ABM and paying bills online – although keep in mind there may be a lag. You may have to wait a business day or two for your money to move over from your savings account to chequing account.

Interest Rate

Depending on the savings account and the financial institution, you can earn some pretty decent interest from a savings account. In fact, you might be able to earn more than you’d otherwise earn from a guaranteed income certificate (GIC).


Banks don’t typically charge you fees for just having a savings account open, although you may incur fees for transferring your money and other services offered by your bank.

Pros and Cons of Savings Accounts

Let’s look at some of the pros and cons of savings accounts to help you decide which savings account is right for you.


  • Savings accounts almost always offer a better interest rate than chequing accounts. They’re the perfect place to store your money for short-term and long-term savings goals.
  • Most of the time you’re easily able to access your money in person, online or using your mobile device.
  • If you like banking in person, most banks let you withdraw money from your savings account at an ABM at no extra cost. You may also be able to withdraw the funds at a branch with the assistance of a teller, too.
  • In the very unlikely event that something were to happen to your bank or credit union, your money is protected by CDIC insurance.


  • Sometimes there can be a delay of a business day or two to move your funds from your chequing account to your savings account and vice-versa.
  • Some banks have minimum deposit amounts in order to open a savings account. You may also be required to keep your balance above a certain level to earn a higher interest rate.
  • Some banks put a cap on the number of transactions you get per month. In this case, you’ll need to use your savings account sparingly or face costly fees.

Best Practices for Savings Accounts

There are several things you can do to make the most of your savings account.


First of all, choose a savings account that’ swell suited to your banking needs. For example, if you anticipate doing a lot of deposits and withdrawals from your savings account in most months, you’ll want to choose a savings account where you won’t be dinged with extra fees for those (or one that offers unlimited transactions).


Some banks offer you a higher interest rate if you keep the balance in your savings account above a certain level. When choosing a savings account, don’t forget to consider the minimum balance requirement (if any); if you aren’t able to save enough to take advantage of the higher interest rate, you’re probably better off with a bank that offers a slightly lower interest rate at a balance level you can achieve.


For any money that you don’t need to use in the immediate future, say, to pay bills or purchase goods or services, it’s a good idea to sock it away in your savings account. In fact, instead of simply saving whatever is left over after each paycheque, a far better approach is to “pay yourself first.” Treat your savings like a line item in your budget. When you get your paycheque from work, automatically transfer a preset amount to your savings account. You’ll be surprised how much money you end up accumulating over time.

How does a savings account work?

It’s always a good idea to keep a float in a savings account that’s easily accessible. Let’s say you have a lot of bills owing one month and you don’t have enough money in your chequing account to cover them. You can quickly transfer the money from your savings account to your chequing account to cover the bills. (Just make sure both accounts are at the same bank, otherwise there might be a slight delay.)

Although you may not have as many transactions in your savings account as your chequing account, it’s still a good idea to check your savings account on a regularly basis. That way you can make sure you’re on track on reaching your financial goals and you recognize and can account for every single deposit and withdrawal from the account.


Some banks let you have savings subaccounts. We find this quite helpful for reaching various financial goals. For example, you could set up savings subaccounts for your next vacation, emergency savings and a new vehicle. By separating these goals into separate subaccounts, you can figure out how much money to save towards each on a monthly basis and keep better track of your progress.

Things to Look for in a Savings Account

There are many different savings accounts to choose from. It’s easy to be overwhelmed. Here are some things to look for in a savings account.

Excellent customer service

Customer service is important in a savings account. Find a bank with a reputation for exceptional customer service. See if the bank lets you ask questions online via chat rather than calling in to wait on hold, if that’s an important feature to you.


Although many banks don’t charge a monthly fee for savings accounts similar to the fee that you’d pay for a chequing account, you may be dinged with other fees, such as withdrawal fees. Make sure you read and pay attention to all the fees before you sign up. Sometimes it’s worth taking a slightly lower interest rate if it means avoiding pesky fees.

Low or no minimum balance

At many banks, a minimum balance is necessary in order to open a savings account and/or get the highest interest rate. Make sure you have enough money before you sign up for a savings account like this. There’s nothing worse than signing up for a savings account, only to find out you’re earning less interest than you thought because you don’t have a high enough balance.

Unlimited transactions

Some banks put limits on how many free transactions you can have a month for your savings account. Avoid this headache altogether and go with a bank that offers unlimited transactions if you’re going to be doing a lot of transactions.

Large ABM network

There’s nothing more aggravating than not being able to find an ABM when you need it. Although this is less of an issue than it used to be, you’ll want to choose a bank that’s in a convenient location for those odd times when you’ll need to make a withdrawal from your savings account in person.

Unlimited transactions

A user-friendly and secure website and mobile app are a must-have. You’ll want to be able to withdraw, deposit and transfer money with ease.

Deposit insurance

Make sure that your bank is protected by the Canada Deposit Insurance Corporation. This covers you and your money if the bank goes bankrupt. Credit unions have provincial deposit insurance, too.

Decent interest rate

 You’ll want a decent interest rate that helps you at least keep up with inflation once taxes are taken in account and an interest rate that helps your money grow.

Dedicated savings account

Dedicated savings accounts are a nice-to-have. They let you separate your funds for different purposes. For example, if you’re saving toward a down payment, you’ll want to keep that money separate from your emergency fund.

Types of Savings Accounts

Here’s a list of the most common types of savings accounts in Canada.


This is the standard savings account offered by most banks and credit unions in Canada. With a standard savings account, you’ll usually get a certain number of transactions in the month. If you go over the number of transactions, you’ll be required to pay extra fees. You may or may not pay a monthly fee. It depends a lot on the bank/credit union and the features of the savings account itself.

High Interest

If you’re looking to earn more money, you might consider signing up for a high-interest savings account. With a high-interest savings account, you can expect to earn almost as much and in some cases more than GICs. High-interest savings accounts are usually offered by online banks. As such, there may be a delay in transferring your money. High-interest savings accounts are good for keeping money you won’t need in the short-term, but if you might need the money in the near future, it’s better to keep it in your chequing account or a basic savings account at your local bank where you can easily access it at a moment’s notice.

Although it’s called a no fee chequing account, there may be charges for other things. For example, you might have to pay fees for e-transfers. If use that feature a lot, it might be worth going with a basic chequing account where those are already included at no extra charge.


About the Author:

Sean Cooper is the bestselling author of the book, “Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians”. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. Sean is a personal finance journalist, money coach and speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense.