Decoding High-Yield Savings: Why the Highest Rate Isn’t Always Best
A 4.75-per-cent savings rate seems much better than 3.00 per cent, but only until you read the fine print.
Canada’s top promotional savings-account rate is much higher than the best standard savings rate. BMO is offering 4.75 per cent for four months, while Simplii Financial, RBC and CIBC are offering 4.60 per cent for three to five months.
Those are eye-catching numbers for short-term cash. But they don’t last.
After the introductory period ends, BMO’s promo rate drops to 0.50 per cent, RBC’s drops to 0.55 per cent, and Simplii and CIBC drop to 0.30 per cent.
That changes the math. If money is left in the account for a full year, a lower standard rate can beat a higher temporary promo rate. A 3.00-per-cent standard savings rate earns about $300 on a $10,000 balance over one year, before compounding.
By comparison, BMO’s 4.75-per-cent promo for four months, followed by 0.50 per cent for the rest of the year, works out to about $192. Simplii’s five-month 4.60-per-cent promo followed by 0.30 per cent works out to about $209.
That is why standard savings accounts deserve more attention right now. WealthOne’s RRSP high-interest savings account and Manulife Bank are tied for the top standard high-interest savings rate at 3.00 per cent, ahead of Saven Financial at 2.85 per cent.
WealthOne’s rate applies to its HISA account using a tiered structure: 2.60 per cent on balances under $10,000, 2.75 per cent from $10,000 to $24,999, and 3.00 per cent on balances of $25,000 and above.
Meanwhile, WealthOne’s RRSP HISA pays 3.00 per cent on any balance with no minimum. Manulife’s 3.00-per-cent rate applies to non-registered accounts and is valid on new deposits for two years.
Promo accounts can still make sense. If you are organized, willing to move your money, and only need a temporary place to park cash, a 4.75-per-cent or 4.60-per-cent promo rate can be useful. But if you are likely to leave your money sitting after the promo expires, the better-looking rate may not be the better account.
GICs tell a different story. These GIC rates are not temporary promos, but they do require savers to lock in their money. The best one-year GIC rate is now 3.65 per cent from MCAN Financial, followed by Achieva and Saven at 3.60 per cent. The best two-year and three-year GIC rates are both 3.90 per cent, shared by MCAN Financial and WealthOne.
At the long end, WealthOne remains the five-year GIC rate leader at 4.10 per cent. MCAN, Achieva, Oaken and Saven are tied in second place at 4.05 per cent. For savers who do not need access to their cash, the five-year GIC remains the strongest guaranteed rate on the table.
WOWA’s collection of the latest mortgage rates shows the best three-year fixed mortgage rate at 3.84 per cent and the best five-year fixed rate at 3.94 per cent. That means the top three-year GIC at 3.90 per cent is slightly higher than the lowest three-year fixed mortgage rate, while WealthOne’s five-year GIC at 4.10 per cent is 16 basis points above the lowest five-year fixed mortgage rate.
In other words, some savers can now lock in a guaranteed GIC rate that is higher than what some borrowers are paying on a fixed mortgage.
For short-term cash, promo savings accounts can still win. For flexible money that can sit for longer, standard savings rates from WealthOne and Manulife are more competitive than the headline numbers suggest. For money that can be locked away, GICs still offer higher guaranteed returns.
The best savings account is not always the one with the biggest advertised number. More often than not, it is the one that keeps paying a competitive rate after the promotion ends.
Interest rates are provided by WOWA.ca, which gathers, aggregates and freely disseminates data on mortgage rates, savings accounts and GIC rates from 50+ Canadian financial institutions.
Jimmy Nguyen is a writer and content developer at WOWA.ca, a Canadian personal finance platform.
This article was first reported by The Globe and Mail
