With interest rates sitting at an all-time low, are people turning away from saving? It certainly seems so, as borrowing costs hit the roof, savers are taking a backseat. The household personal savings rate in Canada, as measured by Statistics Canada has dropped to 3.6 percent. That’s pretty low, considering that Canadians were socking away more than 20 percent of their income thirty years ago. The personal savings rate in 1995 was still at the 13 percent mark. Since then, it’s been a steady decline. So I thought this would be a good time as any, to resurrect the topic of saving and savings accounts.
But why a savings account?
It’s true that in the past few years, savings accounts have been paying next to nothing in interest. Going back pre-2008, when the economy looked as if it was still moving full-steam ahead, many online banks were offering upwards of 5% on your savings. Now you’re lucky if you get 2%. Which is barely keeping up with inflation. But there’s a simple fact – If you don’t set money aside, you will spend it.
No matter what type of savings account you’re looking at (TFSA’s, high-yield, savings bonds, regular savings accounts, etc.), it’s still important to have one. Because more than the interest rates they offer, a savings account is a place to safely set aside your money to achieve a certain savings goal, without any risk. That’s right, saving is about setting goals.
Give your money a purpose
Don’t just let it sit there or let it die in a checking account, where you’re getting close to no interest and are sure to spend it on something else. Give your money a purpose. Open a savings account today and set a goal. Whether it’s to:
- save for a child’s education
- a new car
- a family vacation
- set aside your year-end tax money, if your self-employed
- that new flat screen TV you’ve always wanted, or
- to provide savings in case of an emergency.
Most banks allow you to open multiple savings accounts that you can use to target different goals. At ING, for example, I have one account labeled emergency savings and another for vacation. Make it work for you. Setting aside just $50 every two weeks into your savings account will net you a sweet $1,200 a year, before interest, and you’ll barely notice.
Sign up for an online ‘high’ interest savings account
Yes ‘high’ is in brackets, but that will change over time. Online banks like ING Direct and PC Financial still offer much more attractive rates than the big banks, without any fees of any kind or minimum/maximum balances. Having used many online banking platforms, these online banks also make it a lot easier than most, to link to your existing accounts, without requiring to have another account with them. In other words, they exist to help you save, not sell you on more products. And all deposits in Canada are CDIC insured, up to $100,000, so you won’t lose your money. But don’t trust my word on it, Google their reviews online before you get married to any bank.
For a list and comparison of Canadian high-interest savings bank accounts, check out this site here.
Do you have a savings account? What are you saving for?