The Different Types of Canadian Savings Accounts

Canadians are often stereotyped for apologizing all the time and also spending loads of money on hockey tickets, maple syrup, Tim Horton's coffee, and beer. Despite this luxurious lifestyle, Canadians still manage to handle their finances well. The OECD, an international economic organization, found that as of 2020, households in Canada managed to save an average of $5,816!

Despite these figures, it is imperative to have a bank account to hold one's savings. This article will tackle the best high-interest savings account Canada has to offer!

Regular Savings

If you are undecided on what account to choose yet, starting with a regular savings account is an excellent place to start. A regular savings account is a bank account that pays interest on your deposit money.

You may need to meet the minimum amount to deposit to earn interest in setting up certain savings accounts. A $1,000 is required to gain a one to two-percent interest in most cases. Moreover, there are usually no monthly fees for this type of account. Still, there are service fees for quick transactions like withdrawals, transfers, or payments.

A regular savings account is a good start-up saving opportunity for those with a steady source of income. Even with its low-interest rate, a regular savings account is still helpful; it is not about how much money one can make but how one saves it!

RRSP

An RRSP, or registered retirement savings plan, refers to an account that allows you to save for your retirement by deferring taxes on your investment earnings. The contribution is not solely yours because your spouse or common-law partner can also contribute.

All your income sources direct to your RRSP are usually exempt from taxes as long as the funds remain in that plan. This allows your money to get invested and grow faster.

Data as of 2019 showed that nearly 6 million Canadians only avail themselves of this bank account. Although people shy away from this account due to its tax-deductible fees and lost funds from withdrawn amounts, RRSP is helpful for those who have already started getting income from employment and other sources. RRSPs are ideal for saving for retirement and have one of the highest savings account rates.

RESP

Recent studies show that a four-year education at any university in Canada costs nearly $130,000. This covers tuition, travel, rent, meals, and other personal and health expenses. This looks like a financial burden, especially for families with children!

For this reason, it's important to start as early as now to have a savings account with the best interest rate.

A registered education savings plan, shortly known as RESP, is an account designed to help you save for your child's education. This particular savings account can save up tax-free so you can prepare your child for post-secondary education. Anyone, either a parent, friend, legal guardian or grandparent, can open an RESP for a child.

A 2020 study from the Canada Education Savings Program revealed that nearly 470,000 students availed this type of bank account, where $9,500 was the average annual withdrawal for each student. Another study also revealed that 85% of families in Canada avail themselves of this type of bank account.

So, if you have a child, it is good to start here because not only does it have one of the highest savings account interest rates, but it also serves as a security and investment for your child in the future!

RDSP

Registered Disability Savings Plan or RDSP helps parents and others save for a person eligible for the disability tax credit or DTC. When this person needs money, they can take money from their savings and any earnings they've made.

An RDSP, like an RESP, is eligible for government subsidies, but contributions are not tax-deductible. You can take money out of an RDSP without paying taxes, but you must pay taxes on any income the RDSP earns and return any government grants.

TFSA

TFSA, commonly called a tax-free savings account, refers to a type of tax-advantaged account available to Canadian residents over 18. This type of account lets you set some money aside throughout your lifetime while being free of charge from taxes.

It is also beneficial because it lets you gain investments, whether they come from interest earnings, dividends, or capital gains, and make tax-free withdrawals.

As of 2022, the annual TFSA limit is $6,000. This also pushed the lifetime contribution limit to $81,500. Despite this limit imposed by the Canadian Revenue Agency, this is still a good bank account to choose because it allows you to maximize the $6,000 benefit of a non-taxable monetary saving.

TFSAs have risen in popularity in Canada. A 2020 survey by the Bank of Montreal revealed that 68% of its respondents have TFSAs. However, bank account holders of this type make the mistake of relying only on cash as their primary investment.

To get the best out of your TFSA, it is important to hold other income-producing assets like bonds, stocks, and mutual funds so that short- and long-term financial goals are met!

Save more with us!

Taking advantage of the many types of savings accounts available in Canada can provide you with many perks when it comes to saving money, whether you want to avoid costs or save for the future!

With the new online-banking alternatives, saving has never been more accessible and advantageous, especially now that you have RemitBee. Using RemitBee Money Transfer when sending money abroad, you save more-you send more!

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