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Savings accounts and Chequing accounts. What is the difference and which accounts are best for you?

There are a lot of different bank accounts out there. Different savings accounts, chequing (or checking if you’re in the US) accounts, and investing accounts. So why are there so many accounts? What do each of these accounts do? Which accounts should you have? Let’s explore the basic bank accounts (saving and chequing) and answer these questions.

Let’s start with the chequing account. In Canada the basic chequing accounts are fairly similar to each other. The most common type of chequing account is a personal chequing account but there are also accounts that are made for youths, students, and seniors.

Personal chequing accounts differ by the level of service the bank will provide for you. Basic chequing accounts usually offer a limited number of about ten to twelve monthly transactions for a small monthly fee of usually under $5. Premium chequing accounts charge high monthly fees of up to $30 for unlimited transactions and other special privileges. There are also no-fee chequing accounts that offer unlimited transactions without a monthly fee, however, for these accounts you generally have to give up access to premium features or in-person service. Finally, there are also a few interest-earning chequing accounts.

What about if you are a student? Like many institutions, banks like to give students benefits. Student chequing accounts typically have very low or no monthly fees. They also generally include:

  • Unlimited or a high number of debit transactions per month
  • Low minimum initial deposit or balance requirements
  • A specified number of free email money transfers
  • Rebates toward the annual fee of certain credit cards

Chequing accounts vary based on institution. You may decide to bank with a typical Big Bank such as RBC, TD, Scotiabank, BMO, CIBC, or National Bank, or decide to use a small institution, or digital bank. The following table breaks down the pros and cons of each institution:



Institution

Pros

Cons

Big Banks

  • Robust account offerings with many features
  • Quality online banking
  • Hundreds of branches across Canada
  • Deposits protected by CIDC Insurance
  • High monthly fees
  • Publicly traded companies answer to their shareholders first
  • May not provide the same quality customer service as small organizations
  • Large companies are slow to innovate and improve on digital offerings

Small Banks

  • Robust account offerings with many features
  • Quality online banking
  • Branches in most urban centres
  • Deposits protected by CIDC Insurance
  • High monthly fees
  • In-person banking may be limited, especially in rural areas
  • ATM access can be limited

Digital Banks

  • Offer no-fee chequing accounts with unlimited transactions
  • Access to big bank ATMs
  • Deposits protected by CIDC Insurance
  • Excellent online banking access
  • Usually only offer a single “one size fits all” chequing account
  • Fees charged for transactions typically included in premium accounts
  • No access to in-person services

Source: RateHub.ca

Now in order to choose an institution to bank with and which account to apply for, it is important to understand the typical chequing account features and the fees associated with them. There are five typical features found in chequing accounts:

  • Everyday transactions
    • These can be transfers, point-of-sale purchases, and bill payments
  • Interac e-Transfer
    • Allows you to send and receive money without a wire transfer
  • Banking services
    • This includes in-person banking, online banking, and telephone banking
  • Overdraft
    • The ability to draw out more money than what is in your account temporarily
  • Rebates
    • Some accounts will rebate your monthly fee if you keep a high balance in the account (more than a few thousand dollars)

Now we have to remember that a bank is not just a place to store your money securely, but it is a business too. The bank pays you interest for borrowing your money (usually very low interest rates especially for a chequing account) but it will make some money off of you by charging you fees for services. The table below indicates typical fees to look out for when opening a chequing account.

Fee

Description

Typical Charge

Monthly Fee

Charged once a month to keep your account

$5 to $30 per month (feature dependent)

Transaction Fee

Charged per transaction (may have unlimited or limited no-fee transactions)

$1 to $3 per transaction

Interac e-Transfer

Charged to send an Interac e-Transfer

$1 to $2 per transfer

Overdraft Fee

Charged to allow your account to enter a negative balance

$5 per month to $5 per day your account balance is negative

NSF Fee

Charged if your account reaches a negative balance in excess of your overdraft limit

$30 to $50 per transaction

Source: RateHub.ca


If you do not already have a chequing account and are wondering if you are eligible to open one, you are in luck. All Canadians have the right to open a chequing account at a federally regulated financial institution (a bank) regardless of your financial status. For more information on choosing a chequing account that works for you, visit the financial consumer agency for more guidance and websites of different banks to compare fees and rates. Remember that the different available accounts are designed for different lifestyles, so match the account to your lifestyle. For example, if you like to take out cash from an ATM often, lean towards a chequing account that lets you perform ATM cash withdrawals often and for free. If you send Interac e-Transfers often, choose an account that allows you to send e-transfers many times for free.

Photo by Jason Dent on Unsplash

The chequing account is used for transactions, not for saving. You pay your bills, and get paid from your chequing account. You should keep about the next six months worth of living expenses in your chequing account at all times, which is also known as an emergency or rainy day fund. This will give you flexibility in case a life altering event occurs, such as a natural disaster or even losing your job. So what about the savings accounts? What are they used for and how can you take advantage of them?

Well, a savings account is a bank account that pays you interest on the balance. This means that the bank is actually paying you to borrow the money that is in your savings account. Don’t worry, you have easy access to this depositing or withdrawing money from your savings account, even if the bank is technically borrowing the money from you in order to lend to businesses and other individuals. So how high are the typical interest rates for a savings account?

A daily savings account will only pay around 0.05% interest, while a high-interest savings account will pay an interest rate of 1.5% - 2.5%. Those may all look like small numbers, but even going from 0.05% to 1.5% is a 30 times greater return! High interest savings accounts are a good place to hold your money before you decide to move your money into an investing account. If you let your money sit in a chequing account, you will typically only get 0.01% interest on it!

High interest savings accounts may have fees associated with them. This is because they are not meant to handle many transactions like your chequing account. Do not move money from a high interest savings account unless you absolutely need to, or if you are going to move a significant portion to an investing account. We go into more details about managing your savings and chequing accounts in our free course.

There are also other savings accounts that are considered registered accounts. Registered accounts have great tax benefits but limit the amount of money that can be deposited in the account on a yearly basis. Two useful registered accounts are the Tax Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP). These can hold money in high interest savings accounts, or you can use these accounts to invest in stocks, bonds, Exchange Traded Funds (ETFs), and Guaranteed Income Certificates (GICs). We go into further detail about the benefits of registered accounts and using registered accounts for investing in our full personal finance course.

Thanks for tuning in this week and we hope you have a better idea about which checking and saving account options, at a high level, could work best for you.