Imagine struggling to pay the bills let alone try to buy a house or car. If you’ve had money problems, you know how impossible it can seem to get out of that situation.
However, the right types of savings account models are worth considering. Then, you can save a little, and a little is better than nothing.
Read on to learn about some savings accounts to open.
Basic Savings Account
Many people will start saving money using a basic savings account. Most banks have at least one basic savings account option, so you can open the account at your current bank.
Depending on the account, you may need to keep a certain amount of money in savings to avoid fees. However, you can find plenty of savings accounts without that requirement.
You can use the account to store as little or as much money as you want. It will earn a low interest rate, so you can make a bit of money, but you’ll need a high balance to see significant earnings.
High-Interest Savings Account
A high-yield savings account is similar to a basic one, but you can earn more in interest. Basic accounts tend to offer interest rates close to 0.30%.
However, a high-interest rate savings account can pay up to 1.5% or 2%, depending on the institution. Because of the higher payout, these accounts usually have more requirements, such as a minimum balance.
You might also not be able to take money out of the account as easily. Still, it’s an excellent option, and it can help you build your emergency fund a bit faster than a basic savings account.
Business Savings Account
One of the types of savings account options most Canadians won’t need is a business savings account. This account is specifically for businesses that want to save money.
You can use the account to set aside money for quarterly taxes so that you have enough funds. Another great way to use the account is to save for commercial real estate or another large purchase.
Multiple banks offer business savings accounts in Canada. Like personal accounts, you may need to maintain a minimum balance to avoid fees, but this account is a great option to help organize your business finances.
Youth Savings Account
If you have children, you should consider opening up youth savings accounts for them. These accounts are available to anyone under 18 years old, and they don’t have as many rules as other types of savings accounts.
Your child can start with a smaller balance and not have to pay a maintenance fee. Youth accounts may also offer more withdrawals, so your kid doesn’t need to have a chequing account as well.
Opening an account for your child can help you teach them how to save money. For example, you can automatically deposit a portion of their allowance into the account so that they don’t spend it all.
Tax-Free Savings Account
A tax-free savings account (TFSA) is a type of registered savings account in Canada. You can use the account to save for a big purchase, and you won’t have to worry about paying taxes on your earnings.
The money you contribute to the account is also tax-free, which is nice. If you ever need the money, you can withdraw it from the account without paying a fee or having to pay taxes on the amount.
This is an excellent account that you can use for almost anything. Whether you want to pay off debt, buy a house, or simply save up for the future, you should open a TFSA.
Registered Retirement Savings Plan
Consider another one of the types of savings account options that you register with the Canada Revenue Agency (CRA). The Registered Retirement Savings Plan (RRSP) is the default retirement savings account.
You contribute to the account throughout your working life, and you don’t pay taxes on those contributions now. When you retire, you will pay taxes on your withdrawals, but you can usually pay less in taxes since your retirement income is lower.
In 2022, the maximum contribution is $29,210, so you could reduce your taxable income significantly.
Another benefit of an RRSP is that you can use the money to help buy a home or go to college. Otherwise, you’ll have to leave the money in the account until retirement.
Registered Disability Savings Plan
A Registered Disability Savings Plan (RDSP) is a savings account for people with disabilities. The Canadian government may match your savings up to $3 for every $1 you contribute.
Lower-income Canadians may even get as much as an extra $1,000 per year for up to 20 years. Friends and family members can contribute to someone’s RDSP, so this is a good option for parents, children, and other relatives.
The disabled person can do whatever they choose with the money when they withdraw it. And depending on your province, your RDSP balance may not affect the amount of money you get in disability benefits.
You can go to a major financial institution in Canada to set up an RDSP if you qualify.
Registered Education Savings Plan
Yet another one of the types of savings account options is the Registered Education Savings Plan (RESP). You can use the account to save money for your child’s or grandchild’s college or university education.
The government will match up to 20% of your contributions with a maximum match of $500 a year per child. While you can’t deduct the contributions on taxes, the gains will be tax-free.
Your child can withdraw the money for approved expenses, such as tuition fees. They’ll have to pay taxes on the withdrawals, but it can be nice for them to have extra money.
Guaranteed Investment Certificate
A Guaranteed Investment Certificate (GIC) is a deposit investment, but it works like a type of savings account. You can purchase the investment from a bank, and you agree to keep your money there for a specific period.
In return, the bank will pay you a guaranteed rate of return on your investment. This can be safer than investing in the stock market because you could lose money that way.
Meanwhile, the bank can use your money to loan to other customers. When the bank makes a profit, they’ll pay some of that back to you, so interest rates tend to be higher than regular savings accounts.
How to Choose the Best Savings Account
When comparing various types of savings account models, you have to choose the best fit for you. Luckily, you can open as many accounts as you want, so you don’t have to choose just one.
Here are some things you should think about when deciding to open a new savings account.
Start With Your Goals
First, you should think about why you want to open a savings account. Consider if you want a more general account to hold your emergency fund or other funds for easy access.
If you have a specific goal, figure out if there’s a savings account for that. For example, an RRSP is better for retirement savings than a basic savings account.
When saving for a home, you may want to use a high-yield savings account. That way, you can earn more in interest but still be able to access the money when you want to buy a home.
Consider the Interest Rate
It also helps to look at savings accounts with different interest rates. Higher interest rates can be good, especially if you can keep a decent amount of money in the account.
However, these accounts can also come with higher minimum balance requirements. If you don’t meet that, you may need to pay a monthly fee to keep the account open.
Other high-interest accounts have other restrictions. For example, you can’t take money out of a GIC until the term ends without paying a penalty, and you can’t withdraw from an RRSP until retirement.
Think About Contribution Limits
Some savings accounts let you deposit as much money as you want. Other accounts, such as an RRSP, have an annual contribution limit, so you can’t put all of your money there.
If you have an account that you’ve maxed out, you may want to open another type of savings account. Then, you can put that money away and have it earn interest.
Decide on the Financial Institution
If you already have a savings or chequing account, you may want to open another account at the same institution. Many banks offer a few types of savings account options.
That can help you keep all of your money in one place and move it around if necessary. You won’t have to take out cash and go to a second bank to organize your finances.
If you don’t have a bank account, consider a bank with different accounts. Then, you’ll be able to open as many accounts as you want at the same place.
Which Types of Savings Account Models Will You Use?
The best types of savings account options can vary from person to person. Fortunately, there are a variety of choices available to Canadians, so you can save money the way you want to.
Be sure to consider everything from a basic account to an RRSP or a GIC. Then, you’ll be able to organize your money and set yourself up for financial success.
Do you need a loan to jumpstart your savings goals? Request a loan today.