Stagnant Savings? How to Revamp your Strategy

If your extra money is just sitting in a chequing account right now, it’s not earning its keep.

Standard rates on many high-interest savings accounts (HISAs) range from 1% to 2.5%, with some promotional rates approaching 5%. That’s not eye-popping growth, but it’s still far better than the near-zero return you’ll get from an everyday account.

And that’s just one option. There are many short-term savings strategies, each with different pros and cons.

Matching the right savings account type to your timeline and specific financial goal is key to putting your money to work.

4 savings scenarios, 4 different approaches

Scenario 1: Holiday and gift budgeting

The situation: You’re stashing some cash each month to save up for spending near the end of the year, aiming for about $2,000. You want to keep the account open year-round for easy access.

Consider: A HISA with a high promotional rate and no transfer fees.

Why it works: HISAs are a great option because of their flexibility. Look for banks offering promotional HISA rates — some banks offer nearly 5% for new customers — for three to six months. Plus, there are typically low (or no) minimum amounts required to open a HISA, and you can contribute and withdraw funds whenever you want.

Pro tip: Look for HISAs without transfer fees. Some banks offer unlimited transfers between accounts at the same institution, while others charge a small fee ($1 to $3) for moving money to another bank. If you need to tap the account a few times at the end of the year for holiday spending, the interest you’ve earned could be wiped out by transfer fees.

Scenario 2: Emergency fund upgrade

The situation: You want to grow your emergency fund so that it will cover six months or more of expenses.

Consider: A high-interest tax-free savings account (TFSA) or guaranteed investment certificate (GIC) for six months of expenses; try a split strategy for larger amounts.

Why it works: Canadian Deposit Insurance Corporation (CDIC) deposit insurance protects up to $100,000 of deposits held in a TFSA, making it a safe and simple place to park savings you may need to access quickly. Saving in a TFSA gives you an additional boost by sidestepping taxes on the interest you earn (but be aware of annual contribution limits).

GICs are also insured up to $100,000, and you can hold them in a TFSA. They typically have better long-term earnings prospects, though they may require a little more work. To ensure your money is accessible if you need it, focus your search on cashable or redeemable GICs.

Pro tip: The split strategy. Once you’ve achieved a six-month emergency fund, consider a fixed-income ETF as a home for overflow savings. It’s more liquid than a GIC, and it has the potential to earn more than a HISA.

The difference in rate may not be huge, but, assuming you don’t tap into emergency savings often, the compounding effect over years can add up. While an ETF involves a bit more risk than a HISA or GIC, fixed-income investments are still on the low end of risk.

🤓 Nerdy Tip: Never invest money you can’t afford to lose. If you’re unsure about your risk tolerance, speak with a financial professional before investing. The investing information provided on this page is for educational purposes only.

Scenario 3: Saving for a car

The situation: You’re saving to replace your current vehicle, but you don’t need access to cash right away.

Consider: A short-term GIC.

Why it works: GICs may offer higher rates than a HISA. GICs can lock up your money, though, so look for term lengths that generally align with your intended car purchase.

Pro tip: The shorter your GIC term, the less interest you’ll earn on your investment. For instance, the best 30-day GIC rate on August 13 was 2.25%, the best 90-day GIC rate was 2.8%, and the best 120-day GIC rate was 3.75%.

It’s also worth noting that unless you cancel it ahead of time, GICs may automatically renew after reaching maturity, so you don’t have to constantly maintain the account. Still, it’s a good idea to check if you’re still earning an optimal rate after a few cycles.

Another wrinkle to keep in mind: Banks typically require a minimum deposit, which can range from $100 to $5,000.

Scenario 4: House hunting

The situation: You’re ready to take the plunge into homeownership but don’t know when you’ll find the perfect place. You can’t afford to lock up your down payment and closing cost funds.

Consider: A HISA invested in a First Home Savings Account (FHSA).

Why it works: An FHSA allows you to stash away $8,000 annually for up to five years to hit the $40,000 maximum. The best part? Your money grows tax-free, and you’ll get a tax deduction on contributions, too.

Pro tip: Morgan Adams, a certified financial planner with Tier One Planning in Guelph, Ontario, recommends investing your FHSA funds as a HISA rather than a GIC because HISAs offer more flexibility.

“The rates are also typically close to GIC rates,” Adams says. “A redeemable GIC could also work but you sacrifice the interest rate for it. I always prefer flexibility in these scenarios over rate.”

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