HISA Guide: How High-Interest Savings Accounts Work in Canada

A high-interest savings account (HISA) is a deposit account that pays interest on your balance and lets you withdraw at any time, with no term and no lock-in. It works like any other savings account; the differences are the rate it pays and, at some institutions, the conditions attached to that rate. This guide covers how a HISA works, how its rate is set, how the account type changes the tax on the interest, and the trade-offs against a GIC, a chequing account and investing.

For the posted rates at each bank and online bank, see the savings account and HISA rate table, which is updated as institutions change their rates.

How a HISA Works

You deposit money, interest accrues on the balance, and you can move money out whenever you want. Most Canadian HISAs calculate interest daily on the closing balance and pay it into the account monthly, so the interest paid this month starts earning interest of its own the next month.

How the interest is calculated

The daily interest is the balance times the annual rate, divided by 365:

$$\text{Daily interest} = \frac{\text{Balance} \times \text{Annual rate}}{365}$$

Worked examples at today’s posted rates, by balance and over several years, are on what $10,000 earns in a savings account.

How HISA rates are structured

The posted rate is only part of the picture. Canadian HISAs set their rates in several ways, and two accounts with the same headline rate can pay quite different amounts:

• A flat rate on the whole balance, as at Oaken Financial and the Tangerine Savings Account.
• Balance tiers, where the rate depends on how much is in the account (Simplii Financial’s High Interest Savings Account, TD’s ePremium Savings Account) or on your total balances with the bank (Scotiabank’s HISA).
• A condition-based bonus on top of a base rate. EQ Bank’s Personal Account pays its bonus rate only with qualifying recurring direct deposits of at least $2,000/month.
• A membership or client tier, where a paid plan or your total assets with the company sets the rate (Wealthsimple Chequing, Neo Savings, KOHO’s Earn Interest feature).
• A promotional rate on new deposits for a few months, after which the money earns the account’s everyday rate. Tangerine, Simplii and several big banks run these; the promotional savings rates in the rate table show what each account pays once the offer ends.
• A notice period. EQ Bank’s Notice Savings Account pays a set rate in exchange for 10 or 30 days’ notice before a withdrawal, so the money isn’t available the same day.

Rates are variable. Institutions tend to move them after the Bank of Canada changes its policy rate; how Bank of Canada rate changes affect savings explains the link.

HISAs in Registered and Non-Registered Accounts

The account a HISA sits in decides how its interest is taxed, which can matter as much as the rate.

Outside a registered plan, interest is fully taxable, without the partial relief that capital gains and eligible dividends get. How interest income is taxed in Canada covers the T5 slip and the rules, and the HISA calculator compares what a balance keeps after tax in a TFSA and in a non-registered account.

A TFSA savings account holds cash inside your TFSA, so the interest is never taxed and withdrawals can be re-contributed from the following January 1. Deposits count against your TFSA contribution room. An institution’s TFSA savings rate is often set separately from its main account’s rate: at EQ Bank, the TFSA savings account pays 1.50%, while the Personal Account pays 1.00% base and 2.75% with the direct-deposit bonus. Not every account has a TFSA version; Wealthsimple Chequing, for example, doesn’t. The guide to the best TFSA savings accounts compares the registered options.

Some institutions also offer savings accounts inside an FHSA or an RRSP, which hold cash for a home purchase or between investments inside the plan.

Advantages and Disadvantages of a HISA

Advantages

• Liquidity. Money can come out at any time without a penalty, unlike a non-redeemable GIC.
• No market risk. The balance doesn’t fall with markets, and deposits at member institutions are covered by deposit insurance within its limits.
• Interest on idle cash. A HISA pays interest on money that would earn little or nothing in a chequing account.
• Easy to open. Most applications take a few minutes online and need no minimum deposit (how to open a high-interest savings account).
• Kept apart from spending. A separate account, especially at a different institution, adds a step between savings and day-to-day purchases.
• Registered options. A HISA can be held in a TFSA, FHSA or RRSP at many institutions.

Disadvantages

• Variable rate. The rate can fall at any time, often after a Bank of Canada cut.
• Inflation risk. When inflation runs above the interest rate, the balance buys less each year even though it grows.
• Interest is fully taxable outside a registered account.
• Lower expected long-run return than investing. Diversified stock and bond portfolios have historically grown faster over long periods, with the risk of losses along the way.
• Promotions expire. A promotional rate reverts to the everyday rate, which at some institutions is low.
• Fees and limits at some banks. Some big-bank savings accounts charge for withdrawals beyond a monthly allowance or require a minimum balance.

What a HISA Is Used For

A HISA suits money that needs to stay available, where locking it into a term would be a problem but earning almost nothing in a chequing account would also be a cost.

• An emergency fund. The money has to be reachable within days. How much to keep in an emergency fund covers the size of the fund and where people keep it.
• A down payment with no firm date. Until the closing date is known, a HISA keeps the money available; an FHSA adds a tax deduction for eligible first-time buyers.
• Tax instalments and remittances. Money set aside for CRA instalments or GST/HST remittances can earn interest until the due date.
• Cash between investments. Proceeds of a sale, or a lump sum waiting to be invested.
• Short-term goals such as a trip, a renovation or a car, where the spending date may move.

HISA vs Other Places to Keep Cash

• GICs pay a fixed rate for a fixed term in exchange for access. GIC vs HISA compares the two directly, the GIC guide explains how GICs work, and cashable vs non-redeemable GICs covers the early-withdrawal rules.
• Chequing accounts are for spending; chequing vs savings accounts covers how much to keep in each.
• Bond ETFs and money market funds trade on the market; GIC vs bond ETF vs HISA compares them.

Deposit Insurance

HISA deposits at CDIC member institutions are covered by the Canada Deposit Insurance Corporation within its limits for each insured category, and most credit union deposits are covered by provincial insurers instead. Some fintech accounts hold your money at partner institutions, so the coverage comes through those institutions. The categories, limits and provincial coverage are on CDIC deposit insurance explained.

More Savings Guides

The savings accounts hub lists every guide on HISAs, savings rates and savings calculators. Related pages:

• Best savings accounts and HISA rates in Canada
• What $10,000 earns in a savings account
• Savings interest calculator
• HISA calculator: TFSA vs non-registered
• Best TFSA savings accounts
• GIC vs HISA
• EQ Bank review