High-interest savings accounts (HISAs) are a low-risk way to grow your money and make your savings goals a reality. With a HISA, you'll earn a higher interest rate than you'd get from a regular savings account. For example, a regular savings account may have a 0.5% interest rate, while a high-interest savings account may offer a 4% interest rate¹.

HISAs are becoming more popular with the rise of online financial service providers and can be a great addition to your financial portfolio. Before opening a HISA, it’s important to understand how high-interest savings accounts work.

What is interest?

Understanding interest is essential to understanding how savings accounts work. Interest is the amount of money an institution pays you for holding your money with them. Earning interest is common for many financial products, including various savings accounts, investment accounts, and GICs for example. The interest rate is the annual percentage you earn from the amoun∂t of money you deposit in your account, called the principal sum.

There are two types of interest that you can earn in a savings account: simple interest and compound interest. Simple interest is based on your principal balance at a given interest rate. You’ll commonly see simple interest in car payments and loan installments. Compound interest is the interest earned on both the principal balance and the accumulated interest from previous periods. This is what you’ll see in savings accounts and mortgages.

You earn compound interest based on the compounding frequency, which can be daily, monthly, quarterly, semi-annually, or annually. The more frequently interest is compounded in your account, the quicker your money will grow.

How to maximize growth with compound interest

High-interest savings accounts grow your money faster compared to regular savings accounts since you get a higher annual interest rate and compounding interest. Compound interest is calculated based on the total balance of your account, which includes your deposits and accumulated interest from previous periods, based on the compounding frequency. For example, with monthly compounding, your earnings are reinvested each month and future interest is calculated based on the new principal amount.

There are several ways you can maximize growth with a high-interest savings account. In addition to regularly putting money into your account, it’s also essential to start saving early. Compound interest builds wealth over time, and the earlier you save, the more time your money has to grow.

Let’s use a simple example to understand the growth power of compound interest. You deposit $5,000 into a HISA with an annual interest rate of 4%, compounded monthly. Your money is calculated daily based on the total closing balance of your account and paid monthly, which gets re-invested into the account for accelerated growth.

Here’s a quick breakdown of what the closing balance of your account will look like over 20 years:

| Year | Accrued Interest | Account Ending Balance | |