Sandra MacGregor
There are two main types of bank accounts: chequing accounts and savings accounts. But among these, there are several variations, such as business or student chequing accounts and high-interest or tax-free savings accounts.
To find out which type of account works best for you, we’ll explore their pros and cons and their unique characteristics.
» MORE: How to open a bank account
Chequing Accounts
What is a chequing account?
Chequing accounts are designed for your day-to-day banking needs, allowing you to easily transact with money that you deposited into the account. With a chequing account, you can pay people and businesses via cheque, make Interac e-transfers, receive direct deposits, make withdrawals (in-person, at ATMs, or both), make purchases using a debit card and more.
Usually, chequing accounts earn little or no interest as they’re not intended to hold large amounts of money over long periods of time — that’s what a savings account is for. A chequing account is essentially a place to hold money you can access quickly for daily spending.
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Who is a chequing account for?
A chequing account is of value to most Canadians. Anyone who wants to pay bills, make purchases and have easy access to cash to cover their daily spending can make use of a chequing account.
Types of chequing accounts
There are many kinds of chequing accounts, including:
- Joint chequing account (accessible by more than one person)
- Student chequing account (designed for those in post-secondary school)
- U.S. dollar chequing account (to easily transact in US dollars)
- Business chequing account (to separate business transactions from personal ones)
Pros and cons of chequing accounts
Pros
- Easy and fast access to cash via cheque, debit, ATM or direct withdrawal.
- Ability to conduct daily banking transactions like paying bills and making purchases.
Cons
- May incur monthly fees as high as $30, especially if you don’t keep the minimum balance.
- May charge fees to use ATMs that aren’t owned by your bank.
» MORE: A guide to common Canadian bank fees
Questions to ask about chequing accounts
Seek answers to these important questions from the financial institution before opening a chequing account:
- What monthly maintenance fees are charged?
- Are overdraft or non-sufficient funds fees charged?
- Are there any limits on what kinds of and how many monthly transactions you can make?
- Is there a required minimum balance to avoid fees?
- Does the account earn any interest?
If you choose a chequing account at an online-only bank, ask if the institution has ATMs or shares an ATM network with another bank. The answer will help you know how quickly you may or may not be able to access your funds.
What to consider before opening a chequing account
Here are some things to think about when comparing chequing account options.
- Figure out how many transactions you’re likely to make each month, and look for institutions that offer ample free transactions, and low fees if you exceed that amount.
- Consider online-only banks and credit unions, which tend to offer more free or low-fee chequing options than mainstream banks and may not require minimum balances.
- Before opening an account with a minimum balance requirement, consider what else you could do with that money rather than letting it sit unused in chequing. That money could be earning interest in a different type of bank account.
- It’s worth looking for chequing account offers for introductory promotions or rewards that best suit your lifestyle and needs.
Savings Accounts
What is a savings account?
A savings account is another basic account where you can let money grow by accumulating interest. Savings accounts are not intended to be as liquid as chequing accounts — they’re not designed to perform daily banking transactions or to provide access to funds quickly via an ATM.
Savings accounts don’t tend to have monthly maintenance fees. However, they typically only allow a low number of monthly transactions, sometimes as few as one withdrawal or transfer per month. If you exceed your account’s transaction limit, you may be charged high fees.
Who is a savings account for?
Savings accounts are a good choice for people who are saving money or a specific financial goal and who may want to earn interest to help them achieve that goal more quickly. They’re also a good choice for the money you want fairly easy access to, such as an emergency fund. Because they earn interest, savings accounts allow your money to grow over time.
Kinds of savings accounts
There are many kinds of savings accounts in Canada — many more than chequing accounts, in fact. Types of savings accounts include:
- High-interest savings account, or HISA (earns a higher rate of interest than basic savings accounts)
- Joint savings account (accessible by more than one person)
- Registered savings account (like a tax-free savings account, or TFSA, and registered retirement savings plan, or RRSP)
- Children’s savings account (accounts designed for use by those younger than the age of majority)
- Business savings account (to separate business savings from personal savings)
» MORE: How to compare TFSAs vs RRSPs
Pros and cons of savings accounts
Pros
- Earning interest can help your savings grow faster.
- Certain savings accounts can help you accumulate money tax-free.
- Usually do not charge monthly maintenance fees.
Cons
- Typically allow very few withdrawals each month.
- High fees if you exceed the number of allowable withdrawal transactions.
- Interest rates for basic savings accounts at big banks may be very low and not conducive to growth.
- Interest earned could be subject to taxes.
Questions to ask about savings accounts
Seek answers to these important questions before opening a savings account:
- What is the interest rate?
- How often is the interest rate calculated?
- How often is earned interest paid into the account?
- What fees are associated with this account?
- How many transactions are allowed per month?
- What types of transactions can I make?
What to consider before opening a savings account
Interest rates for savings accounts in Canada can vary widely, so it’s crucial to do some research before you choose a bank where you’ll open your savings account.
As with chequing accounts, savings accounts are offered by institutions other than Canada’s big five banks. Online-only banks tend to offer the best interest rates and the lowest (or no) fees for savings accounts. However, if your online-only bank doesn’t have a network of ATMs, accessing your savings might take longer or incur extra fees.
Because you could incur a hefty fee for extra transactions, consider how many banking transactions you will need to make each month.
» MORE: How to switch to a new bank or credit union
What are hybrid bank accounts?
Hybrid accounts are designed to work like a chequing and savings account in one. They may combine the higher interest rates of traditional savings accounts with the daily banking flexibility of a chequing account. Many hybrid accounts charge lower fees or are fee-free.
However, hybrid accounts in Canada are mainly offered by online-only banks, many of which don’t have any ATMs. That means you may have to transfer your money to a chequing account at another bank or credit union before you can withdraw cash.
How to choose the right type of bank account
The best way to ensure you select the right type of bank account is to think carefully about how you will use it. If you usually shop with a debit card, make frequent withdrawals, and want quick access to cash, you’ll need a chequing account. Figure out how many transactions you’re likely to make each month and how you feel about maintaining a minimum balance to avoid maintenance fees. The answers will help you know what kind of chequing account to choose.
If you’re saving up for a specific goal or just want to earn some interest instead of leaving your cash dormant in a chequing account, you may want to open a savings account. Depending on your savings goals, you may want to consider a tax-free savings account. If you’re comfortable with online banking, you may want to take advantage of the higher interest rates offered by many digital banks.
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