{

When Do Savings Account Interest Rates Matter?

Banking May 10, 2020

What do savings account interest rates matter?


We at WalletWise recommend everyone keep an emergency fund in a savings account, and this account should have enough funds to cover at least several months of your expenses. We specifically recommend against investing any of this fund in the markets, no matter how tempting it may be, as that may mean it is not all there when you need it most (but that's a discussion for another day).

But how much does the interest rate on your savings account really matter? Well, it depends.


First and foremost, if you have minimal savings, for example, less than $5,000, Do not worry about too much about your interest rate. The difference between the highest interest savings account (LBC Digital, 2.25%) and not earning any interest at all is less than $10 a month. Making simple life choices to save (skip the take-out once a month, or cancel a subscription) will likely save more money than worrying about your interest rate


Annual Interest Gained on $5,000
Annual Interest Rate Annual Interest Gained
0.01% $0.50
0.1% $5.00
0.5% $25.06
1% $50.23
1.5% $75.52
2% $100.92
2.25% $113.67

Looking to begin investing but feeling overwhelmed?
Check out Our Guide to Investing


If you have a reasonable amount of savings, specifically greater than $5,000 but less than $40,000, I would recommend at least moving the money into a High-Interest Savings Account (HISA). This is because even a 2% interest rate on $20,000 equates to over $400 a year. It is at this point I recommend exploring one of the many online banks offering High-Interest Savings Accounts with interest rates greater than 1.5%. You are unlikely to find this rate at one of the big banks in Canada during a period of low interest rates, however, these online banks are insured identically to the banks you are familiar with. I still wouldn't worry too much about how the interest rates differ between HISAs and instead pick the bank that works best for you. With a savings account balance of $20,000, the difference between a 1.6% and 2% interest rate only equates to about $80 annually, or less than $7 a month. Hardly an amount to lose sleep over (but you could still move to the higher interest bank if is what you want).


Annual Interest Gained on $20,000
Annual Interest Rate Annual Interest Gained
0.01% $2.00
0.1% $20.01
0.5% $100.23
1% $200.92
1.5% $302.07
2% $403.69
2.25% $454.67

Finally, if you are saving for a big purchase such as the down payment on a home, and have an amount over $40,000, I generally recommend keeping your eyes out for the best interest rate possible. With an $80,000 balance, the difference between a 1.6% and 2% interest rate is over $300 annually. That is probably worth making the effort of opening a new bank account occasionally. If the gap in interest rates is smaller however, I recommend doing the math yourself and seeing if it's worthwhile.


Annual Interest Gained on $80,000
Annual Interest Rate Annual Interest Gained
0.01% $8.00
0.1% $80.04
0.5% $400.92
1% $803.68
1.5% $1,208.28
2% $1,614.75
2.25% $1,818.68

Check Out the best High-Interest Savings Accounts for Canadians

Great! You've successfully subscribed.
Great! Next, complete checkout for full access.
Welcome back! You've successfully signed in.
Success! Your account is fully activated, you now have access to all content.