Don't let Banks Fool You Learn How to Save Money (2024)

When you deposit money in a bank, they use your money to make themselves more money. How do the big banks in Canada thank you? By charging you fees on top of that. Most of us don't grow up with any sort of financial education. We're taught to open an account with one of the big banks, and then we usually tend to stay with them. Since we're not taught about financial education, we also rely on bank advisors to guide us towards healthy financial choices. But you have to remember that the bank makes money when you spend money you don't have. This can be in the form of credit cards, lines of credit, personal loans, and so on. In this article, we will go over a few topics:

• Comparison Between Banks

• What is CDIC-approved?

• Banks I Personally Use

• How to Structure Your Bank Accounts

Comparison Between Banks

As of April 2024, the inflation rate in Canada is around 3%. This means if the money you have saved up in your bank account does not earn more than 3% interest, your savings are losing value, and you're becoming poorer every day. The well-known banks in Canada are notorious for their high fees and low interest rates for their customers.

Here is a list of some of the current banks in Canada and the interest rates they provide as of May 2024:

Note: This table is accurate as of May 2024 and may be outdated in the future. We have included links to each bank account for reference and more information.

What is CDIC-approved?

Before making a switch, the first thing you should be looking out for is whether your money is protected. The Canada Deposit Insurance Corporation (CDIC) protects a set amount of money that you have in your bank account in case the bank fails and can't pay you. If your bank is CDIC-approved and you have eligible deposits with the financial institute, you're automatically protected.

An eligible deposit refers to cash and GICs. You're covered up to $100,000 for each of these separately protected coverage categories per institution:

• Individual Savings

• Joint Savings

• RRSP/RRIF

• TFSA

• FHSA

NOT COVERED:

• Mutual funds

• Stocks and bonds

• Exchange-traded funds (ETFs)

• Cryptocurrencies

Banks I Personally Use

EQ Bank is my go-to everyday bank. I have been using them for a little over 2 years now and have absolutely loved my experience so far. They have both a web banking option and an app for mobile. My pay is deposited in this account. My bills and weekly investments are automatically withdrawn from this account as well. I also have my emergency fund account here. The best news? Both accounts are earning me 4% interest, unlike the traditional bank, which only pays interest on money in your savings account.

TD Bank is the first ever bank account I opened and is now just used if I ever need a physical bank. In the last two years, I've visited TD twice. Both times to withdraw cash, and that is it...

WealthSimple is the platform I use for my investments. Not quite a bank, but they do have a cash account, which I don't use... yet.

How to Structure Your Bank Accounts

First, you need to understand how to save your money the right way. Growing up, I had this idea that to become wealthy, you had to save money. It was only after I started my financial education journey that I learned there are only three reasons to save your money:

1. Emergency: You want to have somewhere between 3 and 12 months of savings put aside to protect you in case of a financial emergency. The amount depends on your risk tolerance, and everyone will have a different risk tolerance. You should not touch this money unless it is an absolute emergency, like if your car breaks down or you lose your job.

2. Purchase: You want to save money for a big purchase in the near future, such as a car or a downpayment on a house.

3. Invest: You want to save money for an investment you're planning on making in the near future, like a rental property, business, or even stocks.

If you're saving outside of these three reasons, you're missing out on opportunity costs. You would be better off investing that money.

Second, you need to lay the foundation with these three accounts:

Everyday Account: I call this the everyday account because this is your main account. This is the account:

• Your paycheck is deposited into.

• Your bills are automatically paid from.

• Your savings and investments are automatically withdrawn from.
  

Emergency Fund: This is your emergency fund and should be in a high-interest savings account. Make sure you don't lock up the money in GICs because you want to be able to access this money easily. If you don't have an emergency fund yet, you need to start building one as soon as possible. Save 3 to 12 months of expenses and set this account aside. Pretend like it's not there; only use it for emergencies.

Investing Account: This shouldn't be mistaken for a day-trading account. The purpose of this account is for long-term investing; ideally, you want to setup a passive investing strategy where a certain percentage of your paycheck is invested into the broad market each time you get paid. Investing sounds scary to a lot of people, but the hardest part is getting started.

Once you have the foundation set, you can start exploring what works best for you and branch out from there. Some people like to have savings accounts for short-term goals. For example, if you're looking to purchase a new car in the near future, you may find it useful to have an account that you're adding to each month to save for that car.

Interested in starting your investment journey?

Check out topics to learn about:

• The Tax-Free Savings Account (TFSA)

• How to Start Investing