Want more money? Very few of us would refuse an extra pay day, but it’s a matter of how we grow our money that might just stop us in our tracks. Where do you begin and how do you know what option is best for you?
One of the best ways to grow your money fast and maximize your savings is through a high-interest savings account. Although not all of these accounts are made equal, we break it down for you, from how they work to what you should consider when opening a high-interest savings account.
What is a high-interest savings account?
It’s all in the name. High-interest savings accounts help you earn money on the cash you save by generating interest on the balance in your account.
Compared to basic savings accounts, which generally earn you a very small amount of interest, high-interest savings accounts are a great way to earn more on the money you’re already putting away for a rainy day.
It may seem simple enough, but there are varying interest rates, fees, and withdrawal rules that can make it tricky to understand which account will help you grow your money in the fastest and simplest way possible.
How do high-interest savings accounts work?
When it comes to high-interest savings accounts specifically, banks often offer higher interest rates to attract new customers. The standard high-interest savings accounts from big banks generally aren’t used for day-to-day banking, so there aren’t many transactions for the bank to process, which keeps costs down and interest rates high.
In the world of digital banking, online banks and companies like Neo are branchless, so the costs cut can be re-distributed to customers, resulting in better experiences and greater benefits for the account holder in the form of high-interest rates and earnings. Check out the best high-interest savings accounts in Canada.
Most banks use a compounding method to calculate interest. This means interest is calculated daily on the total closing balance and paid out to account holders on a monthly basis.
7 things to consider when choosing a high-interest savings account
1. Super high introductory rates can be misleading
The higher the interest rate, the more potential there is for you to earn money on your savings. Many big banks offer high-introductory rates to get new customers, but those rates don’t always last long. These types of intro offers aren’t always the most rewarding, especially if you are just starting to build up your savings.
2. Initial deposit minimums might limit your choice of accounts
Keep an eye out for any strings attached. Some banks require an initial deposit for a certain dollar amount to open up a high-interest savings account. This might limit your options for an account if you don’t have a large lump sum to deposit right off the bat.
3. Minimum balance requirements can make your money hard to access
Depending on the fine print, you might be required to keep a minimum amount of cash in your account. Usually, the penalty for having your balance dip below the minimum comes with additional fees or invalidated interest earnings. This can be particularly challenging if something unexpected happens and you need access to your money quickly.
4. Fees for basic transactions can add up
Most high-interest savings accounts are free to open, but there may be additional transaction fees you should know about. A lot of big banks will charge fees for basic transactions including e-transfers, ATM withdrawals, or monthly statements.
Because of these fees, most high-interest savings accounts are not well-suited to your everyday banking needs.
5. You may not be able to link your existing bank account
A new account with a high-interest rate might catch your eye, but if it’s not offered by your current bank, you might want to think twice. Some financial institutions won’t allow you to link your account with other banks or accounts. This can be a huge pain if you want to set-up auto-deposits or make quick transfers between accounts. Luckily, with Neo you don’t need to worry about linking your existing accounts and you can easily transfer funds into your Neo account from any other financial institution.
6. Deposit options should make your life easier
Making sure you can seamlessly deposit money into your account is important. You don’t want to be stuck mailing in cheques every month. Making sure your savings account can support mobile cheque deposits, e-transfers, and other mobile payment options is a must in your busy life.
7. You shouldn’t need a computer to manage your money
Most banking apps provide less than ideal experiences, to say the least. Selecting an account that prioritizes a seamless, digital-first experience helps ensure that you can pay your bills and meet your financial goals from anywhere at any time.
How does the Neo high-interest savings account work?
Neo’s high-interest savings account was designed to help you grow your savings and reach your goals faster. For starters, our interest rate is 1.55%*. That’s about 30 times higher than traditional banks, where the average interest rate is 0.05%. We also compound interest daily and pay it out to you monthly, so you can rest easy knowing that your money is working for you.
Unlike other high-interest accounts, your Neo Savings account is an all-in-one account, created to help you grow and manage your money. It comes with all of the features you’d expect from a chequing account so that you can pay bills, transfer money, and pay back your friends in addition to saving and earning interest.
Plus, you can take advantage of other innovative products including a cashback rewards credit card that can be easily paid off with your savings account directly in the app.
Even better, you can manage your money without the monthly fees that come standard with other bank accounts. So you always have access to your money when you need it, with no overdrafts, transfer fees, initial deposit minimums, or balance requirements.
How much interest can you earn with Neo?
How much you earn will all depend on how much and how often you make deposits to your account. For example, if you were to start with a $1,000 deposit and make regular contributions of $200 each month, in one year you could make $32.73 in interest.
It may seem small after just a year, but if you continue that pace, in two years you’d make $103.144, and by year three, you’d earn $212.72. That’s a big reward for simply saving your money in one account.
How to open a Neo Savings account
Opening a Neo Savings account is easy. Download the app, have your government ID ready, and snap a selfie. Once you’re approved, you can start depositing, saving and watch your money grow within minutes.
Learn more about Neo Savings and open your account today.
*The Neo Savings account is provided by Concentra Bank, a CDIC member institution, and is eligible for CDIC deposit protection. Deposits held in Neo Savings accounts are combined with eligible deposits held at Concentra Bank, for up to $100,000 of deposit protection, per category, per depositor.