A high-interest savings account (HISA) is a great way for clients to grow their money with minimal risk. With interest rates that are higher than those of traditional savings accounts, HISAs can have a valuable role in short- and medium-term financial planning.
Whether your clients are building an emergency fund or saving for a major purchase, learning what HISAs are and how they work is vital. In this article, Wealth Professional Canada will talk about what HISAs are, some pros and cons, and more!
As the name suggests, a HISA is a type of savings account that offers a higher interest rate than a standard savings account. The main benefit is that your clients' money earns more interest just by staying in the account. There's no need for extra effort.
One of the main advantages of a HISA is that it allows your clients' savings to grow risk-free. The money is not tied to the stock market, so there is no exposure to market volatility. The principal is protected, and the interest earned helps your clients outpace inflation. This makes a HISA a reliable choice, especially if your clients want to put their money to work without taking on extra risk.
HISAs also come with lots of perks. Many accounts have no monthly fees and no minimum deposit requirements. They can also offer ways to help your clients track multiple savings goals. These features make HISAs appealing for those who want to grow their savings without worrying about hidden costs or complicated account rules.
Watch this video to learn more about high-interest savings accounts in Canada:
HISAs are a good option for short- or medium-term savings goals, such as building an emergency fund or saving for a down payment on a home. It can even serve as a low-risk investment vehicle for investors who want to preserve capital while earning modest returns.
A HISA pays interest on the balance your clients keep in the account. The interest is usually calculated daily and paid out monthly. The longer your clients leave their money in the account, the more they benefit from compound interest. This means that not only does the original deposit earn interest, but the interest itself also earns more over time.
Most HISAs offer variable interest rates. The rate can go up or down depending on:
Some HISAs have tiered rates or premium interest periods. For example, your clients might earn a higher rate if they do not make any withdrawals for a set number of days.
Some HISAs can be held inside registered accounts like Registered Retirement Savings Plans (RRSPs). This allows your clients to take advantage of tax benefits while still earning a competitive interest rate. The flexibility of a HISA means that they can access their funds when needed, although some accounts have holding periods.
As such, remember to always review the account terms, as withdrawing funds before the premium period ends can result in losing the premium interest.
While HISAs are not tied to the stock market, their interest rates are influenced by changes in the Bank of Canada's policy rate. When the policy rate rises, HISA rates might also go up, and when it falls, HISA rates might drop. This is something to keep in mind when helping your clients choose the best place for their savings.
Still, it's generally easy for your clients to withdraw their money from a HISA. But if the account has a premium period and your clients take out funds before the period ends, they might lose the premium interest. Always check the terms and conditions of the account to avoid surprises.
As for safety, HISAs are insured by the Canada Deposit Insurance Corporation (CDIC) for up to $100,000 per eligible account, per member bank. This insurance adds another layer of protection for your clients' savings.
Here are some advantages of using HISAs:
On the contrary, you might need to watch out for some disadvantages like these:
The best HISA depends on your clients' priorities and factors such as the highest rate and fees. Other considerations include ease of access and promotional offers. Still, here are some top picks that your clients might consider:
| HISA Provider | Interest Rates |
|---|---|
| CIBC eAdvantage Savings Account | 4.60% for the first 3 months |
| CI Direct Investing High-Interest Savings Account | 1.25% |
| Manulife Bank Advantage Account | 4.50% |
| National Bank of Canada High-interest Savings Account | 0.55% |
| Oaken Financial Savings Account | 2.80% |
| Peoples Trust e-Savings Account | 1.20% |
| RBC High-Interest eSavings Account | 4.60% |
| Scotiabank Momentum PLUS Savings Account | 4.75% for the first 3 months |
| Simplii Financial High-Interest Savings Account | 4.50% for the first 4 months |
| Tangerine Savings Account | 4.50% for the first 5 months |
| Wealthsimple Cash High-Interest Savings Account | 1.75% to 2.50% |
When helping your clients decide between a HISA and a tax-free savings account (TFSA), you need to learn how each account works and what they're best suited for.
A HISA is not an investment account. It is a savings account that pays a higher interest rate than standard savings accounts. However, it's usually at a lower rate than what your clients might earn through investments in the markets.
On the other hand, a TFSA is a registered investment vehicle. While it's also called a savings account, it's definitely more than that. Your clients can use a TFSA to hold cash, but they can also invest in other qualified investments such as exchange-traded funds (ETFs) and mutual funds.
Some TFSAs offer interest on cash balances, much like a HISA, but the main advantage is that any growth inside a TFSA is tax-free.
To open a TFSA, your clients must be at least 18 years old and have a valid social insurance number. The Canada Revenue Agency (CRA) sets a yearly contribution limit, and any unused room carries forward. If your clients withdraw money, they do not lose that contribution room. They just need to wait until January 1 of the next year to put it back in.
A TFSA can be used for both short- and long-term goals. It is flexible plus your clients can withdraw their money at any time without penalty. However, there are limits to how much they can contribute each year. If they go over the limit, they will pay a penalty of one percent per month on the excess amount until it is withdrawn.
Not all investment types are allowed in a TFSA. The CRA restricts certain ones like cryptocurrencies held directly. But as mentioned earlier, your clients can invest in other qualified investments that provide exposure to a wide range of assets.
Cash and GICs inside a TFSA are insured by the CDIC up to $100,000 per eligible account, per member bank. Other investments, such as stocks and bonds, do not have this protection.
Watch this video to know more about TFSAs:
Should clients go for TFSAs or RRSPs? Which is better? Find out when you read our linked guide!
To get the best of these two choices, your clients could use both TFSAs and HISAs.
HISAs are great for emergency funds and short-term savings because the money is accessible and safe. As for TFSAs, they're better for longer-term goals and for clients who want to grow their money tax-free through investments.
If your clients are eligible, you can recommend opening a TFSA. It can be used alongside a HISA to maximize savings and investment growth.
A high-interest savings account is a simple, low-risk way for your clients to earn more on their savings. This type of account can help them grow their wealth due to its flexibility and safety. Plus, it offers the potential for higher returns than a standard savings account.
When combined with a TFSA, your clients can take advantage of both immediate access to funds and long-term, tax-free growth. The more you know about these accounts, the more self-assured you can be in helping your clients build the future they want.
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