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 the unique characteristics.
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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.
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.
There are many kinds of chequing accounts, including:
Seek answers to these important questions from the financial institution before opening a chequing account:
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.
Here are some things to think about when comparing chequing account options.
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.
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 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.
There are many kinds of savings accounts in Canada — many more than chequing accounts, in fact. Types of savings accounts include:
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Seek answers to these important questions 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.
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.
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.
Sandra MacGregor has been writing about personal finance, investing and credit cards for over a decade. Her work has appeared in a variety of publications like the New York Times, the UK Telegraph, the Washington Post, Forbes.com and the Toronto Star. You can follow her on Twitter at @MacgregorWrites.