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What Are the Six Different Types of Bank Accounts?

There are many types of bank accounts to help you prepare for short-term, medium-term, and long-term goals like an emergency fund, buying a home, going back to school, and retirement. Finance experts recommend saving small amounts of money often, which will allows more time for the funds to collect interest, meaning more money for a relaxing retirement or a much-needed emergency fund. If you’re interested in saving, or wondering where to store your savings, this post will talk about common options for bank accounts in Canada. Set-up an appointment with your bank for more details about what they offer in their account products, and what might be the best fit for you.  

1. Chequing Accounts 

Chequing accounts are the most basic bank accounts in Canada, often used for holding money from paycheques and withdrawing for everyday purchases. These are more commonly used for deposits and withdrawals, bill payments and other purchases, not for long-term savings.  

2. Savings Accounts 

Savings account may seem like chequing accounts at first, but they are more commonly used for saving money and growing it for medium-term or long-term with interest. Savings accounts may or may not allow unlimited transactions, but if the bank limits transactions, there will be a fee for making too many in a month. Therefore, savings accounts work great to save for the future, rather than for everyday banking.  

3. Registered Retirement Savings Plans (RRSPs) 

The RRSP is an account that holds money most commonly for retirement, and in some cases for the down payment of a home or financing full-time education. If you deposit money into an RRSP, those funds will not be taxed until you withdraw them, often at a lower tax rate than when you were working (since they then count as your “income”). Canadians can contribute to their RRSPs until December 31 of the year that they turn 71.  

4. Tax-Free Savings Accounts (TFSAs) 

A TFSA is an account to store money that has already been taxed, so you will not be taxed on any money you withdraw from it. Experts say that TFSAs are great for people living on lower incomes and saving for both medium-term and long-term goals, due to the no-tax withdrawals and the fact that they do not reduce guaranteed income supplement (GIS) benefits during retirement. TFSAs are multipurpose and can supplement retirement plans. There is a maximum amount that you can contribute to these beneficial accounts, and it is the total of the amounts allowed for each year since 2009 that you have been 18 years old or older. The government adds contribution room with each new year. As well, any amount you withdraw from the TFSA in a year is added to your contribution room for the next year. Unlike RRSPs, the government does not mandate withdrawals from TFSAs, so you can hold money in a TFSA for your lifetime.  

5. Registered Disability Savings Plan (RDSPs) 

Please visit our earlier blog to learn more about the benefits of RDSPs: https://momentum.org/intro-to-rdsps-the-disability-tax-credit/ 

6. Registered Education Savings Plan (RESPs) 

Also checkout our blog about the ins and outs of RESPs: https://momentum.org/how-to-invest-in-your-childs-future/  

Choosing your Accounts 

When you are choosing an account to hold your savings, consider the following points. Also contact banks that you are considering or look at their website to see what they are offering! 

Your Goals: What are your short-term, medium-term, and long-term goals? Saving accounts and TFSAs can be used for medium- and long-term goals.  RRSPs are specifically meant for retirement.  

Your Spending and Saving Habits: Do you plan on withdrawing from the account often? Are you able to hold a minimum balance in the account as long as it is open? Look at the account’s transaction limits, minimum balance required to avoid fees, and interest rates that your money will accumulate. 

Need Help Saving?  

Any time is a great time to save for an emergency fund. Join the Momentum Savings Challenge on the QUBER app. Each month you save $40, you’ll earn cash rewards. Learn more here. https://momentum.org/programs-services/manage-your-money/savings-app/ 

 

Further Resources: 

Contributed by Ruth-Anne Klassen

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