High-Interest Saving Accounts: Do They Have Sense in 2021?

There are savings, and there are savings that grow. Why would you NOT want your money to make you more money? Even if the first year’s interest is most likely under $100 — it’s still better than nothing. 

What are High-Interest Savings Accounts? 

HISAs (High-Interest Savings Accounts) are pretty popular in the US, but Canadian banks also have options. In short, a HISA is just regular savings account with a better interest rate. However, this interest makes all the difference.  

A “traditional” savings account can generate you just 0,01% in the first year. High-interest savings account in Canada can reach (as in October 2021) up to 1,5% — which is 150 times bigger. 

Key Terms for High-Interest Savings Accounts

There are some details that make the whole thing worth it. Here they are — with simple explanations: 

Annual Percentage Yield

This is the interest rate for a savings account. It also works for HISA. The Annual Percentage Yield is the theoretical interest rate calculated over one year. You can use it to compare different savings account options, or it can be helpful when you figure out how long your deposit will last with different interest rates. 

Partial Maturity Factor

The Partial Maturity Factor (PMF) is the interest rate of your savings account over a period of time. It’s calculated as a ratio of your deposit and its ending balance (at maturity). It separates the interest rate of different savings account options. For example, if you have a savings account that pays 1% for your first year and that pays 10% for the next 15 years, you’ll get a PMF of 10%. It is, however, just an example. 

The PMF is a very important issue when you choose which kind of HISA to invest in. If you deposit $1000 at a savings account with 1% interest and at another one with 10%, you’ll get the same amount at maturity — $1000. However, by investing in the better one, you’ll get $100 more. That’s worth it! 

HISA Account Type

Account type is an important thing about high-interest savings accounts in Canada. Usually, you can find two options: linked and separate. Linked means that the HISA is linked to other bank products, while separate means that it’s not. 

Here are some linked account types: chequing account, credit card account, or line of credit. Linked HISA is much more convenient but usually has lower interest rates. 

What is Linked HISA?

A linked HISA is high-interest savings account that you’re tied to other banking products. For example, you can get a checking account and a HISA at one bank — that’s the linked version. If you don’t like this and want to keep that money separate — check out the “separate” HISA options. 

What is a Separate HISA?

A separate account is a high-interest savings account that is NOT  tied to other banking products. Simple as that. You use just one product — and can forget the rest. 

Is HISA Even Worth It?

Frankly speaking, depositing in a HISA is worth it ONLY if you have enough money to start. The real deal starts from $5.000. 

Let’s imagine a situation: you somehow have $5.000 in savings (say, under your bed in a box) and want to put them to HISA with an average interest rate of 1.25%. You also want to add around $250 every month, and you know that you’ll take your money back in 1.5 years. 

  • Your initial deposit will be $5000; 
  • Over 18 months, you’ll deposit $4,500 more; 
  • And your interest will be $133. 

So in 1.5 years, you get your money and a 2-weeks contribution “for free” — from your interest rate. Not much, but consider the details: 

  • Service fees on high-interest accounts are basically (most of the time) 0%; 
  • You’ve spent just 18 months (not a long-term savings strategy) following your plan and cashed out 18.5 months worth of savings; 
  • All of it — with zero to no risks (compared to high-risk investment strategies, like shorting stocks or playing around with cryptocurrencies). 

Of course, things get better if you deposit more: 

With an initial deposit of$ 10,000; 

A better HISA YPA (say, 1,5%)

Monthly additional savings of 500$ for three years…

Your interest will be around $850. 

Not the biggest return, again, but we’re not talking about doubling your money — just comparing the “traditional” savings account to a high-interest one. 

Of course, it has no sense if we are talking about significantly smaller savings. A $1000 deposit with $200 monthly contributions will bring you just $32 — it’s not worth the time you’ll waste opening the HISA (even though it’s a relatively quick process). 

The Bottom Line

High-Interest Savings Account is worth it only if you have a significant initial deposit AND don’t expect miracles to happen overnight. If you want to triple your money in a week — maybe trading $DOGE or Shiba crypto coins with a 20x leverage is the way to go (get ready to lose the whole savings account in a moment as well, though). 

HISA is an option for those who just want to ensure their savings are safe (and generate a little bonus for not spending them on gambling).

Leave a comment

Your email address will not be published. Required fields are marked *