As the name suggests, a high-interest savings account (HISA) gives you higher interest on your money than a typical savings or chequing account. However, an HISA is a lot more versatile than it may seem. Use it correctly, and it can be a more flexible, and also lucrative, place to stash some of your hard-earned savings.
Here are four ways an HISA might benefit you and your money.
1. Gives you more from your savings
When you want to put funds aside for a special trip or a large purchase, keeping money in your daily chequing account might be convenient, but it will yield a scant return on your cash, says Jonathan Braun, manager of tax and estate planning at IG Wealth Management. “Chequing accounts generally offer very little interest, if any,” he says.
One of the main advantages of having a savings account is to keep your daily spending separate from your longer-term savings.
HISAs generally come with higher interest rates. For instance, IG Wealth Management’s EQB High-Interest Savings Account, which requires a minimum deposit of $500, offers a 2 percent rate.*
Other HISAs come with higher introductory rates, but Braun says to be wary of enticing promotional offers as these bonuses quickly disappear. “It’s always nice to get either a higher interest rate or free transactions for signing up, but it’s important to look at what the regular rate will be when it kicks in,” he says.
2. Separates your savings
One of the main advantages of having a savings account is to keep your daily spending separate from your longer-term savings. Typically, any money earmarked for specific goals, such as travel, an emergency fund or a down payment on a house, should be kept in an account so you don’t spend it away.
While you can use a regular savings account for this purpose, if you have a good nest egg, you might as well earn interest on that money in an HISA, especially in this era of low interest rates. And if you do need that money right away, then you can still easily pull it out.
3. Gives you more flexibility
But what about the tax-free savings account (TFSA), you say? While it was originally used as a place for people to keep short-term cash, now that you can invest $6,000 a year into these accounts, more people are using them for medium-to-long-term savings.
These accounts are not ideal for those who need to withdraw money, but then plan on replenishing the account soon after. “You don’t want to use your TFSA for frequent deposits and withdrawals like your daily savings account, because you’re going to use up your contribution room very quickly,” he says, adding that you don’t regain contribution room until January 1 of the following year.
Transactions such as bill payments and transfers may cost you more in an HISA than in a chequing account, says Braun. “Sometimes you get one or two free transactions per month and anything above that might trigger additional transaction fees, so you should review the fee schedule for the HISA before making too many debit card purchases for example,” he explains.
4. Changes your investment strategy
In some instances, such as with IG Wealth Management, you can hold an HISA inside of an investment account, says Braun. This is handy for when you want to sell an investment, but aren’t ready to reinvest the cash. “If you have mutual funds, stocks or bonds, and you want to exit those investments, you might want to park yourself into cash for a little while before you decide what else to buy,” he explains. “With an HISA, your money earns some interest during this time.”
Be sure to find an account that offers the right balance between fees and interest and note how often the interest is calculated. “Sometimes, the institution will pay monthly and other times they’ll pay yearly,” explains Braun, noting you might score a higher interest rate from an account that pays out once a year.
Ultimately, “treat your HISA as a savings account like you would have in the past,” says Braun. “It just happens to get you a better return on your money.”
* Interest rate current as of January 16, 2019.
