How many bank accounts do you really need in Canada? | Blog

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Numbered blocks, to signify that more than one bank account is a good idea for Canadians to manage their finances.

The Get

Is one bank account all you really need?

For this week’s No More Ls column, we’re looking at the premium cost of paying for things that make our lives easier: the convenience tax.

By Ciara Rickard

For the organization-challenged among us, simplicity holds a lot of appeal when it comes to personal banking. You just need one place to deposit your paycheque so you can pay all your bills and fund those Friday-night espresso martinis, right?

We hate to be the bearers of bad news, but: wrong. If you’re using just one account for all your banking, you’re missing out on opportunities to not only save money but grow it too.

“The myth is that you’re one and done with a single account, but money doesn’t really work that way,” says Lesley-Anne Scorgie, a Toronto-based personal-finance expert and the founder of money-coaching company MeVest. “I am not a fan of having too many accounts, but giving each account a purpose—and there are multiple purposes—does make sense.”

She explains that organizing your funds according to their purposes ensures you’re prepared for expenses—both the necessary and the fun kind—and lets you take advantage of high-interest accounts and other tools.

“For example, money that doesn’t need to cycle in and out for regular bill payments should be in a savings account earning some interest,” she says. “It’s tricky to make sure you’ve got your financial house in order without having at least a few different accounts.”

So, how many accounts should Canadians have?

At the bare minimum, most people should have one account for frequent, everyday transactions—akin to your parents’ chequing account (even if you rarely write cheques now)—and one savings account.

Your chequing account is where your paycheque and any other incoming funds are deposited and where all of your fixed expenses come out of: mortgage payments, car insurance premiums, property tax and so on. Your savings account is where you accrue some cash, but there are going to be different purposes for that cash—long- and short-term goals—so it’s generally recommended that you have more than one.

Which accounts do you need? “I would say the number one is an emergency fund,” says Jessica Morgan, a Toronto-based personal-finance writer and the founder of Canadianbudget.ca. “This is a larger amount of savings in case you lose your job, have a family emergency or you’re unable to work—it’s a financial safety net.”

She also recommends having a few other savings accounts with designated purposes so that when certain expenses come up, you’re prepared. “I have one for vacation savings and one for holidays, like Halloween and Christmas. If you have a small business or side hustle, it’s important to set aside money to pay taxes on that income.” Both Scorgie and Morgan stress that you should keep your emergency fund and any other savings in high-interest accounts.

But for those of us who like things kept simple: Make sure you have a chequing account for bills, a savings account for short-term savings (for things like vacations, cars and that essential emergency fund) and another savings account for longer-term savings (say, a wedding)—and make sure you’re getting a healthy interest rate on those savings accounts. (You can also use registered accounts for long-term goals, too. More on those below.)

Using separate accounts helps you know where your money is and what you’re saving for (yes, you can even customize account names on most apps), you should also be able to save money on fees and earn more in interest. For starters, parking all your cash in a chequing account means you’re missing out on interest you could be earning with the right savings account. So, sniff out those high-interest accounts, and if you’re really motivated, move your money to a new account from time to time to take advantage of better rates or introductory offers.

Don’t fall into a fee trap, though. Many accounts have minimum-balance fees, charging a few dollars a month if your balance dips below a certain amount, usually $3,000 to $5,000. Know that some accounts have no fees or low fees, and many financial institutions reduce or waive minimum-balance fees if you open multiple accounts. In some situations, having a few accounts can actually save money.

What about registered savings accounts?

You can also hold long-term savings accounts within tax-sheltered and tax-deferred registered accounts. “A TFSA is something every Canadian over the age of 18 should open,” says Morgan, noting that it should be an investing account, not just a savings account, under the tax-free savings account name. “It is one of the best ways to grow wealth without tax implications.”

A registered retirement savings plan (RRSP) is another helpful account because contributions are deducted from your taxable income, saving you money come tax time. You pay tax on that money once you start withdrawing it in retirement, but since your income is typically lower then, the tax you pay on it will be lower as well. “I think a combination of TFSA and RRSP is a really good plan,” says Morgan.

Depending on your long-term goals, it’s worth exploring other types of accounts. A first home savings account (FHSA), for example, can be very helpful (even when buying a home in Canada seems to require the combined life savings of everyone in your group chat—and maybe your first-born). It allows you to make tax-deductible contributions, and when you need that money to buy or build an eligible home, you can withdraw it without paying tax on it. Similarly, a registered education savings plan (RESP) helps you save for your child’s post-secondary education—so once you have an empty nest, you can actually enjoy it rather than scrimping to cover tuition.

How to choose a bank account

Rather than just signing up at the first institution that pops up when you google “best savings account,” do a little homework first. “There are so many amazing bonuses and offers right now for opening new accounts, you should go with whatever fills your cup,” says Scorgie. “But, really, fees are important, interest rates on savings accounts are important and access to your money is important.”

And name recognition shouldn’t necessarily be guiding your choices here either, says Morgan. “Look outside the big banks. Look for the fintechs, online banks, credit unions—as long as they’re covered by CDIC, which is the Canada Deposit Insurance Corporation, they’re generally safe.” They all want you as a customer, so compare the introductory offers and interest rates before handing over your cash. You don’t have to be loyal, you have options.

Ciara Rickard has over 20 years of editorial experience as a writer and editor, honed at titles like ELLE Canada, Vogue and Tatler. She is based in Toronto.