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How do High Interest Savings Accounts work?

6 min read

How do High Interest Savings Accounts work

Written By

Sam Boyer
Sam Boyer

We all want our money to work for us. What’s better than our money making money? A traditional savings account is a great place to set aside money that we’re going to need for another day. However, traditional savings accounts are basically just holding accounts – because they don’t accrue much interest. When you want your savings to grow faster, you need to be using an account that allows you to earn interest quickly.

That’s where High Interest Savings Accounts come in. Knowing how to make your savings account work for you and what the best options are for a high interest savings account is key to maximizing your financial opportunities and earn interest rates like you have never seen before. The doors of online banking and savings accounts make it easier than ever to capitalize on the highest interest rates currently available in Canada.

What is a High Interest Savings Account?

A High Interest Account does what the name suggests – it’s a savings account that offers higher interest rates than traditional savings accounts. Most savings accounts, like the type you automatically get when you open a chequing account, offer pretty low interest returns. Their interest rate is often in the 0.1-0.3% range for what you can expect for earn interest rates.

High Interest Accounts, on the other hand, offer an interest rate of up to 3% and sometimes even higher. That can equate to 10x the savings, or more, especially when the interest is paid monthly. As High Interest Accounts provide better returns than traditional savings accounts, they’re a popular savings mechanism for Canadians. Let’s learn more about this unique and powerful type of savings account.

Online banking and accounts, like KOHO, allows users to access the best interest rates and savings account options. Hight rates, minimal regulations, less minimum balance required, and specialized online banking options make these very attractive options for those looking for the best savings account interest rate.

How to use a High Interest Interest Savings Account

High Interest Accounts operate more or less like traditional savings accounts. You put money aside into savings, moving it away from your chequing account and the risk of spending it, and over time your savings will grow. The obvious benefit of a High Interest Rate Savings Account over a traditional savings account is the accelerated rate of growth. This allows you to build your savings with options to earn interest at the highest possible interest rate.

A High Interest Savings Account is fantastic for squirreling away emergency funds and short to mid term savings – like vacations and even savings for a home. Your savings account, at its most basic, is your own personal safety net, with easily accessible money that’s there if and when you need it. The more you add to your High Interest Savings Account, the better you’ll do with your higher interest rate.

How does a High Interest Savings Account work?

High Interest Rate Savings Accounts offer high returns. And that’s a great benefit or anyone needing a savings account to squirrel money away. But what else do we need to know about these unique savings account setups? How do you earn interest rates like this on these accounts? There is a lot to know about high interest rate accounts and savings accounts, and it can be a little overwhelming but you can easily earn interest on your savings account once you get everything set up.

The good news is that they’re super easy to set up. You can apply for High Interest Earning Accounts online or in person at most banks or credit unions. You need to be a Canadian resident, have a Social Insurance Number, be the age of majority where you live, and provide proof of identity and proof of address. These are basic requirements that will be required when you open a chequing account or bank account with a good interest rate. You can save money and time and give yourself a good advantage by choosing a bank account with the best interest rate available.

How is Interest Calculated?

Interest is accrued and calculated daily on the money in the account, with compound interest. This means you get interest on everything in the account, so the interest you earn also receives interest on that. The longer you leave money in, and the more you have in your account, the more you accrue. This incentivizes you to save more, and leave your money in place safe and secure in the savings account associated with your online banking.

Where a High Interest Account differs from a traditional savings account is in some of the account rules and stipulations. They often give you less freedom with your money than a traditional savings account would. Some will charge you a fee for every transaction, for example, or have minimum balance requirements, or withdrawal limits, or transactions may take longer – a day or so – to process.

It’s important to note, too, that interest earned in a High Interest Account is considered taxable income. This is similar to a traditional savings account. Each year, your bank should send you a T5 form around tax time and you need to submit this alongside your other tax forms when you file your year-end taxes with the CRA.

Finding the Right Interest Savings Account For Online Banking

Interest rates on a savings account

When choosing the right High Interest Savings Account, there are a few things to consider. Obviously, the interest rate is pretty critical. This might be the thing that draws you in – but be sure to investigate the details beyond the up-front numbers. Many financial institutions will market their High Interest Accounts with very high, very appealing interest rates – like 6% or more. But be sure to read the fine print.

Impressively high interest rates are often gimmicks, called introductory rates or promotional rates. After a few months at that beneficial rate, the real rate might kick in and these can be a significantly lower rate – sometimes as low as 0.4%. Finding a High Interest Savings Account with a set, long-term rate of around 3-4% is often a good bet. KOHO offers you realistic interest rates and a proven track record of reliable interest rate options and makes it easy to deposit money and save money every day. You can use your account to save money, manage bill payment, withdraw funds, and find smart interest rates and options that meet your needs.

Minimum deposits and balance limit for savings account

Some High Interest Savings Accounts require a minimum deposit to open the account, or a minimum balance for the account and these can vary. Similarly, some financial institutions require you to maintain a minimum balance in your account at all times. Check with your bank or credit union what’s required before you commit to an account. Knowing the minimum monthly balance limit needed to earn interest rates is also something to look into when choosing the account type you want. Finding savings accounts and bank accounts with the best savings rate available is key to maximizing those minimum balance and minimum deposits.

Fees with a high earning savings account

While some High Interest Savings Accounts don’t charge monthly fees and other fees, others do, depending on your minimum balance required for the account and other terms associated with the bank accounts. Some financial institutions charge monthly account fees. Others charge transaction fees – sometimes up to $5 per transaction – for e-transfers and withdrawals. If you’re not making many transactions and the account offers a great rate, this may not be an issue for you. But it’s worth checking so you know what you’re signing up for and there won’t be any surprises. Make sure to check to see what is considered eligible deposits and if there are fees for things like online banking transaction, online transfers, trying to withdraw funds, and other ways you might use or transfer money.

HISAs vs. GICs savings accounts

Similar to a High Interest Saving Account (HISA), you can earn great interest rates through another savings tool called a Guaranteed Investment Certificate (GIC). While both offer higher interest rates than traditional savings accounts, there are some major differences between the two. These include features like tax free savings account, monthly fees, if interest is calculated daily, what the closing balance limit requirements are, the smart interest rates available, and how to withdraw funds when you need them.

High Interest Accounts give you more freedom because you’re able to access your funds whenever you want. At worst, you’ll be charged a transaction fee for taking money out, but with many accounts you won’t even suffer that small penalty. With GICs, on the other hand, your money is not accessible. It’s locked in. GICs offer great interest rates – often 5% or more – but you can’t take your money out once it’s in there, until the end of the agreed investment term. Typically, GICs require a minimum investment of $500 and the term lengths range from 30 at the short end up to 10 years in some cases. If you pull your money out early, you will be penalized and may not get any additional returns.

GICs are fantastic for guaranteeing returns over a set period, but if you need access to your money in a hurry, they’re maybe not for you.

Setting up a KOHO Savings Account For Online Banking and Savings

There are a lot of great High Interest Saving Accounts out there and you need to do your research to discover the right offer for you. One option to consider in your research is our offering right here at KOHO. Their savings account options offer free online transfers, reports on daily closing balance, opportunities to earn interest and avoid service fees, and enjoy the benefits of online bank account agreements.

KOHO is a financial services company offering a range of innovative products, including the KOHO High Interest Account, which pay interest rates of 4.5%, as well as up to 6% cashback on some spending. It is a unique offering that cannot be found with other traditional savings account agreements. Lower service fees, better online bank account options and more flexibility than traditional financial institution options set KOHO apart.

Setting up a KOHO savings account is a simple process that can be done in less than five minutes online, with a few simple steps. Visit the KOHO website or download the app, provide the necessary information, and fund your account. You can choose between four different levels for your online bank savings account – Easy, Essential, Extra, and Everything – and then let the savings begin.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!

Sam Boyer

Sam Boyer spends, invests, budgets, and writes. He enjoys writing about things he wishes he’d learned earlier — like spending, investing, and budgeting. A journalist originally from New Zealand, Sam has written extensively about consumer affairs, insurance, travel, health, and crime.



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