The Savings Account: The Greatest Lie in Banking

6 min

I remember it like it was yesterday. At 12 years old, my parents took me to my local bank to open my first ever savings account. This was a big deal! No more piggy bank. No more coins. I now had a bank account in which I could save my money. I remember my dad saying to me, “This account has a great interest rate. That means your money will grow really quick!” I was so excited. I was ready to be a millionaire. Yet, in the years I saved and saved and saved, my money did not grow. A dollar a year perhaps, maybe two if I was lucky. Upon turning 19, I familiarized myself with how to actually generate wealth, and how to not remain confined to my former bank’s misleading account.

The savings account is not the place to save your money, and this week’s blog post tells you why.

An Overview

A savings account is a deposit account in which a bank or credit union may grant you an interest rate to grow whatever funds are in the account. This interest rate is generally stable and positive, so there should be no fear of losing money from depositing funds into a savings account. These accounts have no limits, so you are free to put as much money in as you desire. I assume that most of you have a savings account in some capacity. However, a savings account may restrict you from numerous purchases throughout the month. Across the board, the main banks in Canada promote basic savings accounts that have limits around 1 transaction a month. This makes the savings account a fine place to store your money, however, it may not be wise to spend out of it often.

The Basic Interest Rate

In short, the main banks in Canada are giving citizens minimal returns in their savings accounts. At the time of writing this post, the Big 5 Canadian Banks (TD, RBC, CIBC, Scotiabank, and BMO) offer savings account with an interest rate of about 0.01% a year. What this means is that every year, your money will grow by only 0.01%. For instance, if you had $10,000 invested into a savings account (an account often promoted as the ideal place to park your money), you would only generate $1 of growth. Sadly, you cannot achieve your desired goals on savings account interest rates, in contrast to what the banks have led you to believe. Even many “high interest savings accounts” only grant an interest rate of about 0.05%. I’ve arrived at the conclusion that a high interest savings account is nothing more than an oxymoron.

The Promotional Interest Rate

You may see ads or billboards that attempt to rope you into a large bank’s savings or chequing account. They may say “get a 1% interest rate if you sign up today,” or something along those lines. However, one must always read the fine print. Many banks have promotional interest rates that sustain better returns but only for a short period of time. I have routinely seen banks promote interest rates of 0.5%, 1%, and even 2% only for the promotion to last 3-6 months. These promotions are negligible in the long run. They simply want to get you through their doors and ensnarl you in their large and sticky financial web.

The Fees! Oh, The Fees!

Like we’ve alluded to before, the savings account may allow you to make minimal purchases. You may be lucky to have 1 penalty-free purchase a month, or perhaps may have none. When I first opened my savings account, I was unaware of these limits. Thus, at the end of the month, I was shocked to see over $25 worth of transaction fees charged to my account! I can only imagine what the trouble would be if I had needed to have a couple more purchases.

Savings accounts have some of the highest transaction fees out there. If you go over your transaction limits you may be charged anywhere from 50¢ up to $5.00 per transaction! Imagine if there was one unpredictable month, perhaps even Christmas, in which you had multiple purchases. If a savings account is accidentally used, it could be the largest cost you have in a month.

What Should I Use My Savings Account For?

A savings account is a great option for an emergency fund or for money you know will be used for short-term needs. An emergency fund is an amount of money set aside that remains untouched until an emergency comes up.

A recommended emergency fund is about 3 months of your current expenses. A savings account is good for this goal because you are not using it often, therefore, you aren’t incurring those high savings account penalties.Furthermore, short-term funds are good to have in your savings account. A savings account is a good holding zone for this money. However, when thinking about longer term savings (i.e., over the span of multiple years), it would be wise to invest your money in some capacity.

Depending on your time horizon and your risk tolerance (how much fluctuation of your money’s value you can handle), you should understand your potential investment choices and arrive at one that suits your needs. If you’re ever wanting to select investments that are right for you, reach out to one of our advisors at Skyward Financial. We’re always looking forward to helping you along.

A Change from the Big Banks

Over the past year, we at Skyward Financial have been thoroughly understanding what the major Canadian banks are offering you. Time and time again, we have come to the same conclusion: the major banks could be offering you better solutions, yet they are not. After this recurring realization, we decided to do something about this travesty.

As a result, we have proudly partnered with Manulife Bank and are able to offer you savings accounts, chequing accounts, and credit cards. Furthermore, we can direct you do professionals who specialize in helping you with acquiring loans and mortgages.

We have been blown away with Manulife Bank’s array of selection. They are a truly innovative bank that is leading the charge for the financial industry, especially in these future years during and after the pandemic. They have made the banking process as straightforward, efficient, and accessible as possible. And even with all of that, they can offer some of the most versatile banking products out there. Specifically, we at Skyward Financial value their Advantage Account, which is a combined savings and chequing account. We promote this to many of our clients, and many have told us this is the best account they’ve ever had. The Advantage Account offers you the purchasing flexiblilty of a chequing account alongside the higher-than-average interest rate of a great savings account.

There are so many great features associated with our partnership with Manulife Bank that, sadly, I cannot relate all of it here. However, if you’re interested in how Skyward Financial can help address your banking needs, saving habits, and investing goals, just reach out as always.

This week’s blog post has shed light on what a savings account is, how savings accounts usually operate within mainstream banking, as well as how Skyward Financial can help you with our fantastic partnership with Manulife Bank. Though it may seem like a small piece of your financial affairs, there is great utility in having banking work for you in a comfortable way, rather than turning your head from spontaneous fees and transaction limits.

We’re happy we can share this valuable information with you and looking forward to when we can help you create a plan that puts you in the driver’s seatT. here are truly great things in store for you and your money! All the best till next week.

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