Can you get interest on a chequing account?

When it comes to earning interest, chequing accounts aren’t exactly at the top of the food chain. Savings accounts offer higher interest rates to encourage you to park your money and grow a nest egg. Chequing accounts, on the other hand, are used for day-to-day transactions (depositing paycheques, paying bills, withdrawing cash at the ATM, making purchases with your debit card) and usually offer little (if any) interest.

However, there are chequing accounts in Canada that pay interest on your account balance. Read on to learn more about how to find one and what to look for.

Do daily chequing accounts earn interest?

It really depends on the individual financial institution – some banks and credit unions in Canada don’t offer interest on any of their chequing accounts, while others pay interest on certain types of chequing accounts. Some chequing accounts may only pay interest if you maintain a minimum balance, or offer higher interest rates on higher balances.

The best way to find out whether or not a particular chequing account pays interest is to go straight to the source. Banks and credit unions publish current interest rates for all products on their websites, and rates are updated daily. Just make sure you read the fine print, because some accounts offer promotional interest rates that only apply for a short period of time.

It’s also important to know how interest is calculated on your chequing account. For example, many chequing and savings accounts have an annual interest rate, with interest calculated daily and paid out monthly.

To calculate the amount of interest earned in a month using this method, take the annual interest rate and divide it by 365 to get your daily interest rate. Multiply the daily interest rate by the balance in your account at the end of each day. At the end of the month, each day’s interest is tallied up and paid out as cash in your account.

What is a normal chequing account interest rate?

To be blunt, don’t expect much. As of this writing, many of Canada’s Big Five banks only offer interest on select chequing accounts, and no interest at all on others. You’re more likely to find a chequing account that pays interest through an online bank or credit union (such as Tangerine, Simplii, EQ Bank, Motive or motusbank), which offer more competitive rates on chequing, savings and hybrid accounts.

However, even if you find a find a chequing account that pays interest, the interest rate on your chequing account will still be modest (for example, 0.01%) compared to the average savings account. Your chequing account balance is also more likely to fluctuate as you spend, compared to a savings account where you will (ideally) continually build up your balance.

Is it better to keep money in chequing or savings?

It depends on what you’re using the money for – though it’s a good idea to have both. In general, chequing accounts are used for making deposits (such as cash, cheques or direct deposit) and spending money, whether it’s tapping your card to pay for coffee or lunch, paying the monthly electricity bill or sending an Interac e-Transfer to your roommate to cover your half of the rent.

If you’re looking to save and grow your money, you’re better off putting it in a savings account, tax-free savings account (TFSA) or registered retirement savings plan (RRSP). Savings accounts can be used for short and long-term savings goals such as saving up for a car or vacation, or for starting an emergency fund. You can open multiple savings accounts for separate goals, and you can always move your money around if you find a better interest rate at a different financial institution.

Earn interest with KOHO

With a KOHO account, you can earn interest on your entire balance. KOHO is a hybrid spending and savings account that lets you deposit, spend, save and transfer money just like any other bank account. The interest rate you earn depends on which KOHO plan you choose:

• Easy: Earn 3% interest on your entire balance.

• Essential, Extra and Everything: Earn 5% interest on your entire balance.

These are annual interest rates, and will be calculated daily and paid out monthly. If you sign up for a KOHO plan, don’t forget to opt in on the Interest page in the KOHO app to start earning interest on your balance right away.

Your KOHO account comes with a prepaid reloadable Mastercard and also offers free unlimited Interac e-Transfers, cash back and an app with spending insights and balance updates after every purchase.

It never hurts to earn a little bit of interest, but it’s just one thing to consider when choosing a chequing account. Don’t forget to also consider things like no monthly fees, unlimited transactions and Interac e-Transfers, plus branch and ATM access.