By Jesse Collier. Updated July 2017.
Stop putting cash in a box in the back of your closet. Instead, make more money from your hard-earned dollars with these tips!
Saving money is all about starting early. Do you ever wonder how parents can afford to send their kids to college or retire in the Bahamas? They started saving when they were in their 20’s with RRSPs (Registered Retirement Savings Plan), 401 (k)s, or College 529 Plans.
All of those may sound like fancy mumbo-jumbo, but we’ll help to clear them up for you so you can start to save money today.
If you have money from birthdays and holidays, student loans, or from part-time jobs, make sure you use it well and start to make money on your savings!
Looking for extra ways to save money? Read about our 10 ways to save money while still in school!
What’s on this page?
How do I save money?
Saving is easy if you can remember a few simple rules:
- Save as much as you can afford
- Don’t touch your savings if you can help it
- Find the best interest rates
Even putting just $10 a week into a savings account can have you with $520 in savings at the end of a year. Any interest you can earn on that money while it’s in a savings account is just extra gravy on top of the turkey.
Let’s start off with 5 ways to save money early so you can live off it in the future.
5 ways to save money
Saving isn’t the easiest thing to do on a student budget, but if you start small and remember to deposit in a savings account, you’ll be golden.
- You know all that change you get throughout the day? Grab a large jar and start depositing in it. Before you know it, those cents will turn into dollars.
- Review your spending. All those little expenses such as eating out a few times a week or going to Starbucks can really cut into your budget.
- Already have a part-time job during the school year or in the summer? Start putting a bit of every paycheck into a savings account and watch the returns grow.
- Try your best to quit bad habits. In Canada alone, the economic burden of smoking is about $18.7 billion. Cutting the use of cigarettes and e-cigs out of your life could save you huge amounts of money in the long run. It will also increase your life expectancy by up to 20 times!
- Use an automatic savings app to determine your saving habits. These apps save without you having to do a thing!
Do you have more savings habits that work for you? Let us know in the comments!
Before you open a savings account
Before you open a savings account, there’s a few things to think about. If you already have an account, these points might give you a few ideas!
Determine your saving habits
Are you the type of person who squirrels away money only to take it out at the slightest drop in your bank account? Or can you afford to put some money away for the long-term?
Be honest with yourself. Determining which type of saver you are will help you to structure a savings plan for the future.
Check your safety net
The Canada Deposit Insurance Corporation (CDIC) and the Federal Deposit Insurance Corporation (FDIC) both insure the money you put in savings accounts. The CDIC ensures up to $100,000 while the FDIC ensures up to $250,000 of your hard-earned cash in case your bank fails.
The process to reclaim your funds can vary depending on how much was lost, but there have been numerous cases where people have gotten their money back.
So when you choose a bank, whether it’s for the first time or if you’re switching, make sure they insure their customers with either the CDIC or the FDIC.
Big spender? Create a budget!
If you struggle to save regularly, creating a budget could help you plan out which expenses to cut and which to keep.
Creating a budget will also allow you to plan out how much money you can afford to save. If you’re debating whether you can afford to save, try taking out some cash from the bank. When you have it in your hand, ask yourself if you want to have that later or spend it now. Unless it’s an essential expense, you’ll almost always save it for later.
If you absolutely need to spend – for example if you need new clothes – get cash back for your purchases!
With interest, more is better!
You may already be getting a great interest rate with your bank. But what if another bank could offer you an even better rate?
Banks will try to entice you with bonuses and variable interest rates. If you go with a fixed interest rate, you won’t have much to worry about, as the rate will stay the same through market fluctuations.
However if you go with a variable interest rate, then pay attention to your bank’s and other bank’s rates. If you find a better rate somewhere else, switch!
What type of savings account do I need?
There are many different types of savings accounts out there, and they all vary depending on how you want to save.
It’s worth a note that you may get taxed on any interest you earn when you use savings accounts (with some exceptions). The US taxes interest based on your tax bracket. So if you earn $0 – $9,325 as a single person, the interest you earn will get taxed at a 10% rate. These numbers will change if you’re married.
You have to report to the IRS any interest income above $10, and your bank will send you a 1099-INT tax form. Any interest income over $1,500 will also have you filling out a Schedule B form.
However, in Canada, any investment or interest income over $50 is taxed and you’ll receive a T5 tax slip to be filed with your taxes. Yet us Canucks have a special account called a Tax-Free Savings Account (TFSA) – more on that below.
We split up the types of savings accounts by country (USA and Canada) to avoid confusion:
USA Savings Accounts:
> Regular Savings Account – This is the savings account that you usually get by default when you sign up for a checking account with your bank. It usually has:
- No check-writing abilities
- Higher initial deposit
- Higher minimum daily balance requirement
- A limit of 6 withdrawals per month (though we don’t encourage you to shoot for this)
These savings accounts are often the best for people just getting bank accounts such as students or minors. They are linked to your checking account, allowing you to exchange funds between accounts and potentially avoid overdraft charges if they occur.
Regular savings accounts have very low interest rates, so if you have a good stash of cash, this account may not be the way to go.
> Online Savings Accounts – These accounts are handled completely online or sometimes by phone, but never in person. They offer a higher interest rate, as well as:
- No minimum deposit to open an account
- No minimum balance requirements
- No monthly maintenance fees
If you only use your banking accounts online, this one may be the one for you, with higher interest rates to boot!
Keep in mind that the interest rate some banks pay you is based on how much money is in your savings account. These are called tiered-rate accounts.
> Money Market Deposit Accounts (MMDAs) – The money market is the part of the financial market where things with high liquidities and short maturities are traded. These can range from Negotiable Certificate of Deposits (NCDs), U.S. Treasury Bills (T-Bills), and Commercial Papers.
- FDIC Insurance (you definitely want this)
- Higher minimum balance requirements
- An interest rate usually between the regular and online savings accounts
> Certificates of Deposit (CDs) – these are savings certificates that allow the holder to receive interest. CDs have a term from one month to five years, with longer terms usually paying a higher interest rate. They also have:
- A fixed interest rate (it won’t fluctuate throughout the term)
- FDIC Insurance
- Usually a higher interest rate than online savings accounts
- An early withdrawal penalty if you take out the money before it matures (when it needs to be renewed or it stops existing)
Do all these still sound alien to you? Ask us in the comments and we’ll answer any questions you have!
Canadian Savings Accounts:
Canadians gain all of the benefits from the above savings accounts, with the addition of one other. Keep reading Canadians, because you’re going to like this part:
> Tax-Free Savings Accounts (TFSAs) – Did you just say tax-free? I sure did. The magical thing about TFSAs is that they’re completely tax-free (unless you move large amounts of money – they’re keeping an eye on you).
So how do TFSAs work?
Each year, Canadians over 18 with a valid Social Insurance Number (SIN) can contribute a yearly limit, which changes every year. If you go over that limit, you pay tax on the excess TFSA amount.
Read more about the TFSA contribution limits, withdrawals, and transfers.
Do you have a different savings account that you use that works well for you? Put it in the comments below!
Best Savings Accounts
This section features the best savings accounts for the US and Canada. These are a mix of the accounts above so make sure you look into each type of account before you choose one.
These accounts assume that you have a minimum balance of $2,000. Read here if you have more or less in your account or for all locations across Canada.
Keep in mind that interest rates change almost monthly due to fluctuations in the economy. Bookmark this page and we’ll keep you up to date with the latest rates!
Canada: Current Top Savings Accounts
- Monthly Fees – $0 and no hidden fees.
- Transactions – Unlimited withdrawals and transfers. 5 Interac e-transfers.
- Insurance – CDIC insured
It also has unlimited deposits and free linked accounts. Interest is calculated daily on every dollar in the account and is paid out monthly.
Note that this account is not available in Quebec.
- Fees: $0
- Transactions: Unlimited withdrawals and transfers
- Insurance: CDIC insured
Interest is calculated daily and paid monthly. This account also has no minimum deposit.
USA: Current Top Savings Accounts
US savings accounts also account for Annual Percentage Yield (APY). This page explains that with multiple examples. The APY is almost always the same or very similar to the interest rate.
- Fees: No transaction fees
- Transactions: Free unlimited deposits online, by check, or wire transfer
- Insurance: FDIC insured
This account has no minimum deposit and a six withdrawal limit. Also keep in mind that this is a variable rate, so the interest rates may change.
- Fees: No transaction fees or services fees
- Transactions: Make withdrawals online, by phone, or with your ATM card
- Insurance: FDIC insured
This savings account is unique because you get an ATM card with it, which can be used to withdraw your money at a large network of ATMs.
- Fees: No hidden fees
- Transactions: Move funds between accounts easily. Also deposit via checks with their mobile app.
- Insurance: FDIC insured
This account has interest compounded daily and has currently one of the highest APYs in the US.
Savings for the future
Earlier we mentioned RRSPs, 401(k)’s, and College 529 plans. So how are these different from traditional savings accounts?
Registered Retirement Savings Plan (RRSP) – An RRSP is an account registered with the federal government in order to save for retirement. Some of the advantages of an RRSP are:
- Tax Deductions – You can deduct your RRSP contributions from your income each year, giving you a bit of a tax break.
- Tax-free Earnings – You won’t be taxed on the money earned from your RRSP plan.
- Tax Deferral – You will be able to defer the tax on any investment into your RRSP until you withdraw your money from it. This means you will pay tax later when you need the money, however your marginal tax rate may be lower.
Interested on opening an RRSP to save money for retirement? Read more about it here and the difference between a TFSA and an RRSP.
The 401(k) Retirement Plan – The 401(k) plan allows employees to either take their pay into their bank account or defer part of it to the plan. The money in the 401(k) plan is usually tax-deferred, like an RRSP.
While employers aren’t required to match the contributions from the employee, most do as a profit-sharing feature. This could be profits or stocks from the company based on annual earnings. This plan gives the employee a sense of ownership in the company.
There’s also contribution limits that employees can defer. For 2017, the deferral limit is $18,000. Read here to learn more about one of the best savings account plans, the 401 (k).
The College 529 Plan – The college 529 plan is a savings plan that helps families to save money for college costs for their children. This plan is only available in the US, but it’s similar to the Canadian RESP plan in that they both intend to save for post-secondary school.
The college 529 plans are state or school sponsored, so they vary depending on the state and school you decide to go to. They are split into either prepaid or savings plans.
- Savings plan – this plan works much like a 401 (k) plan in that it invests your contributions into investments like mutual funds. The balance in your account will go up or down depending on how your investments do in the markets.
- Prepaid plan – this plan lets you pay all or part of an in-state college tuition. It can also be used for private or out-of-state tuition.
Read here to learn more about college 529 plans and how you can start saving for them today.
The college 529 plan and the Canadian RESP have some similarities, but also some differences. Read about them here.
Do you have other savings accounts that you find to be really good or have questions about saving for the future? Let us know in the comments!