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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, but 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 earning higher interest. That’s where High Interest Savings Accounts come in.

What is a High Interest Savings Account?

A High Interest Savings 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 rates are often in the 0.1-0.3% range. High Interest Savings Accounts, on the other hand, offer interest rates up to 3% and sometimes even higher. That can equate to 10x the savings, or more. As High Interest Savings Accounts provide better returns than traditional savings accounts, they’re a popular savings mechanism for Canadians. Let’s learn more.

How to use a High Interest Savings Account

High Interest Savings 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 Savings Account over a traditional savings account is the accelerated rate of growth.

High Interest Savings Accounts are 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.

How does a High Interest Savings Account work?

High Interest Savings Accounts offer high returns. And that’s a great benefit. But what else do we need to know?

They’re super easy to set up. You can apply for High Interest Savings 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.

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.

Where a High Interest Savings 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 Savings 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 High Interest Savings Account

Interest rates

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 Savings 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.

Minimum deposits and balance

Some High Interest Savings Accounts require a minimum deposit to open 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.


While some High Interest Savings Accounts don’t charge fees, others do. 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.

HISAs vs. GICs

Similar to a High Interest Savings 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.

High Interest Savings 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

There are a lot of great High Interest Savings 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.

KOHO is a financial services company offering a range of innovative products, including the KOHO High Interest Savings Account, which delivers 5% interest, as well as up to 6% cashback on some spending.

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 – 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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