The best alternative to a savings account may be a chequing account, hybrid account, high interest savings account (HISA), guaranteed investment certificate (GIC), exchange traded fund (ETF), or bond – depending on your financial goals and risk tolerance.
A savings account gives you somewhere to safely park your money and generate passive income in the form of interest payments. The thing is, a traditional savings account is not the only way to accomplish this.
As we’ll explore in this article, there are several low-risk ways to better maximize your savings. Here are our top 5 alternatives to savings accounts.
Key Takeaways
- A savings account is a dependable place to store your money, but you may be missing out on more lucrative opportunities.
- Chequing and hybrid accounts allow you to make everyday transactions.
- GICs and HISAs provide guaranteed returns.
- You can invest in an ETF portfolio or mid-risk bond if you’re looking for greater diversification and higher returns.
Overview of the best alternatives to savings accounts
To us, the best alternatives to savings accounts are similarly low-risk, low-maintenance, and low-cost (in terms of fees).
Here’s a comparison of our top choices:
| Alternative | Interest rate/rate of return | Monthly fees | Best for… |
|---|---|---|---|
| Chequing account | 0% to 0.1% | $4 to $30 | Everyday banking |
| Hybrid account | 2.25% to 5% | $0 to $19 | Flexibility and solid rates |
| High interest savings account | 0.4% to 5.5% | $0 | High interest rates |
| GICs | Up to 5.5% | N/A | Low-risk investing |
| ETFs | Up to 15% | N/A | Higher returns |
| Bonds | Varies by type of bond | N/A | Diversifying your portfolio |
1. An easier-to-access chequing account
A chequing account charges lower fees than a savings account on activities like transfers and payments, but it also offers lower interest rates (usually 0%) on your savings.
In other words, you pay less in fees and earn less interest with a chequing account as compared to a savings account. This makes a chequing account a good option for daily transactions but a poor choice for long-term savings since you’re missing out on higher interest rates.
Actually, banks, financial advisors, and other industry professionals will typically suggest having both a chequing and savings account to start.
2. A flexible hybrid bank account with solid rates
A hybrid bank account may be the perfect combination for you. It mixes elements of both a savings account and a chequing account into one multifunctional account for no monthly fees.
Most hybrid accounts offer you interest on your funds and provide cash back on your purchases made with a prepaid card. The EQ Bank Personal Account and Wealthsimple Chequing account even have extra perks, such as no FX fees.
These types of accounts are versatile, but may not be a fit for those who prefer to keep their chequings and savings separate.
Learn more about the EQ Bank Personal Account here:
If you’re looking for a simple place to stash some extra cash and earn a higher-than-average interest rate, EQ Bank Personal Account may be exactly what you’re looking for. It does have a few other features, including the ability to easily send International Money Transfers, but otherwise it’s mostly geared to earning you interest.
- High daily interest rate
- Easy access to all other EQ Bank products
- Less expensive international money transfers
- Zero everyday banking fees
- Free Interac e-Transfers, electronic funds transfers, and bill payments
- No minimum balance
- No welcome bonus
- Age of majority
- Canadian citizen
- Very high interest rate
- Includes a prepaid cash back Mastercard
- No ATM fees, plus reimbursement for any independent fees
3. A more lucrative high-interest savings account
A HISA – high-interest savings account – is a type of savings account that offers significantly higher interest rates than typical savings accounts, but with a few caveats.
While traditional banks offer HISAs, their aggressive rates typically only last a few months before being reduced to regular rates. To take full advantage of their promos, though, you’ll want to avoid making early withdrawals.
Online banks offer HISAs with higher rates for longer periods, but you’re only one app crash away from temporarily losing access to your money in an emergency.
| Type of bank | Pros | Cons |
|---|---|---|
| Traditional | Very high introductory interest rates | * Top rates are temporary * Early withdrawals are penalized |
| Online | High (regular) interest rates | * No brick-and-mortar locations for in-person assistance |
In summary, HISAs allow you to earn more from your savings but are less liquid than a traditional savings account. Consider getting a HISA for a secondary emergency fund or goal wallet, but keep a traditional savings account for your primary emergency fund.
4. More stable GICs
Instead of saving your extra cash in an account, consider buying GICs. A GIC guarantees a return upon maturity, making it one of the safest investment vehicles available to Canadians.
GICs also typically offer higher stable interest rates than savings accounts – sometimes even higher than 5%. At the time of writing, the best GIC rate in Canada comes from WealthONE, with interest rates ranging from 4.8% to 5.5%, depending on term length.
However, you do need to lock in for at least 90 days (depending on the GIC) or risk either paying a penalty or losing your interest. Non-redeemable GICs are totally inaccessible until maturity, making it much less liquid than a traditional savings account, but are still an easy and reliable way to invest parked money.
5. A hands-off robo advisor account with ETF portfolios
Just like a human advisor but much less expensive, a robo advisor invests your money on your behalf based on your goals and risk tolerance.
Among other things, you can use a robo advisor to build an ETF portfolio, which is a low-risk and diverse collection of stocks that can generate much higher returns over time than the interest on your savings account.
However, consider 2 things:
- first, remember that stocks are still more volatile than interest rates, and
- second, it’s a lot harder to pull out money from your portfolio than it is to withdraw from a savings account.
An ETF portfolio with a robo advisor is best if you have money to invest, don’t need immediate returns, and prefer a hands-off approach to investing. But it’s definitely not suited for an emergency fund.
If you do think this approach suits your needs, check out Questwealth, our winner of the Best Robo Advisor award as part of our Best of Money Awards. With some of the lowest fees of any Canadian robo advisor and a long list of account types to choose from, Questwealth might just be the answer to your investment needs.
Questwealth portfolios is the robo advisor service offered by Questrade, a large online broker in Canada. It offers you ETF-based portfolios in a variety of account types – ranging from personal, to registered, and even corporate. If you're looking for an investment account that does all the work for you, this is one of the best places to start.
- Some of the lowest fees in Canada
- Covers transfer fees for any balance
- Reinvests dividends
- $1,000 minimum investment
- Fees for wire withdrawals
- Some of the most competitive fees in the business
- TFSA
- RRSP
- Spousal RRSP
- LIRA
- Locked-In RRSP
- RIF
- LIF
- RESP
- Family RESP
- Cash
- Joint Cash
- Corporate Cash
- FHSA
- Margin
$75 GeniusCash + Unlimited transactions for $0 + Ding-free non-affiliated ATM usage.
$25 GeniusCash + $50 bonus for funding a new account, and $0 commissions on stocks & ETFs
$12 GeniusCash + Access trusted news coverage 24/7 + Digital and home subscription options.
$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.6. A mid-risk bond
Bonds are much more volatile than both GICs and savings accounts, but they have historically returned higher yields over time.
However, this alternative is even less liquid. The only way to pull out before maturity is to sell your bonds to other investors at the value they’re willing to pay, which could potentially be just $10 for a bond you paid $1000 for.
We only recommend investing in bonds if you already have sizeable emergency funds in your savings account.
What savings account alternatives do you use?
Deciding what to do with your hard-earned money can be intimidating. But with enough research, you’ll find many low-risk and low-maintenance ways to make it work even harder for you.
So what savings account alternatives do you use? Would you recommend this option to others? Did any of the above options interest you?
Let us know in the comments!
FAQ
What is the best alternative to a savings account?
The best alternative to a savings account depends on your risk tolerance and financial preferences. Chequing accounts, hybrid accounts, HISAs, and GICs are low-risk options, and those who are comfortable with more risk can try investing in bonds or ETFs.
What are safe alternatives to savings accounts to make more money?
We recommend a high interest savings account. It provides better returns, but has higher transaction fees. Alternatively, consider GICs if you want even higher interest rates and don’t mind your money being locked in for a longer period of time.
Why is a savings account a safe investment?
A savings account is considered a safe investment because you’ll never lose your principal, bank interest rates aren’t volatile, and you can easily withdraw money anytime.
Leave a comment
Comments