Yay I have savings! Now, where do I put them?

Everyone knows it’s good to put money away, but it can be hard to know exactly where to put it. There are so many options and timelines and acronyms (HISAs, TFSAs, RRSPs, oh my!). Plus, if you need to access some of the money you so cleverly put away, you have to navigate how the various penalties work.

(For instance did 19 year old me know that dipping into my TFSA, which was primarily invested in GICs, to help make it through an unpaid internship would cost me? No, no she did not.)

It seems confusing, but it doesn't have to be. Start with the most important question: When will you need this money? That’ll help you understand which account will maximize your savings or investments so the money’s there when you actually need it. (It doesn’t make sense to save up for Tulum the same way you would for retirement.)

Once you know what you’re saving for (and when you’ll need it) you can look into what kind of savings or investment account makes the most sense.

HISA vs GICs? What are the options for your savings in Canada?

High Interest Savings Account (HISA)

What is it? Basically exactly what it sounds like: a savings account that you set up at any bank or credit union that allows you to earn a higher interest rate. In Canada, if you search around, you can find HISAs with interest rates of at least 2%. If you stick to the standard savings account from your bank (you know, the kind that comes with any old chequing account) you'll get a measly interest rate of around 0.10%. So shop around!

What can I use it for? High interest savings accounts are great if you’re saving for something near-term; like if you’re planning your dream wedding or trying to get your emergency fund up to snuff. Your money is completely safe from any market movement, but the higher interest means your money will be earning way more than a chequing account (which, sadly, is nil).

Are there any rules? Sometimes, but what they are honestly depends on the financial institution. Make sure to know what the maximum withdrawal amount is, and ask about transaction fees and monthly fees. Some HISAs have a minimum deposit — or sometimes maintaining a minimum deposit unlocks a slightly higher interest rate. Of course, any money you make off the interest will be fully taxed by the CRA.

Best option for opening one: Look for something that earns at least 1.5% interest, with no opening fee or minimum deposit. If your bank won’t offer you the HISA you want, check out Ratehub.ca for the best offer—it might be worth it to switch savings accounts.

Guaranteed Investment Certificate (GICs)

What is it? So, a GIC is not, technically speaking, a savings account. It's something that can go inside a savings account, TFSA, or RRSP. It’s a safe, low-risk investment that is guaranteed to make interest, as long as you leave the money alone. You buy a GIC with the money inside your account, and it’ll earn interest...like a savings account…. but unlike a savings account, there’s a fixed interest rate and a fixed amount of time (or "term")—this could be 6 months, 2 years, 5 years, etc.—which also means that you won’t be able to take money out within that set period of time without paying a penalty. The longer the term, the more interest you’ll make. You know exactly how much your money will grow over time, but it’s not accessible to you until after the GIC expires.

What can I use it for and when? Well, it depends on the GIC’s maturity date. If we’re being totally candid, and we are, a GIC is only good for meeting pretty niche savings goals. If you want it for near-future stuff (like going on a big vacation in exactly two years), you can set it up on a two-year time period. If you won’t be touching this money for a long time, you’ll earn more money by investing your savings.

Are there any rules? Yep. There’s typically a $500 minimum deposit to open a GIC, and there are steep penalties for withdrawing any money before the end date. For each withdrawal, your financial institution will take a percentage (usually around 10%) if the amount your taking out—so, if, for example, your doggo needs an emergency vet visit after eating something really, really weird, and you need to withdraw $1000, you’d be dinged $100.

Best option for opening one: Because a GIC isn't quite the same as a savings account, you can actually hold a GIC in your TFSA or RRSP account. And it really, really depends on your needs. Find one with the maturity date (or term) you want, and see whether you'd earn a higher interest rate by simply using a flexible savings account.

Tax-Free Savings Account (TFSA)

What is it? A TFSA is an account in which you can hold things like cash (your actual savings), or investments like stocks, bonds, mutual funds or GICs. The best part? Any money you make in it isn’t taxed.

What can I use it for and when? TFSAs work best for medium-term goals—think more like a car than this year's vacation. Depending on how the money in the account is invested (i.e., do not learn the hard way about GIC withdrawal penalties, like me), you can usually withdraw the money at any time, tax-free.

Are there any rules? There are contribution rules each year that limit how much money you can put into your TFSA. But! It’s cumulative, so if you don’t contribute the maximum amount one year, the remaining “room” is carried over to the next year. On the other hand, if you go over the limit for a given year, you could be subject to tax.

The TFSA became available to all Canadians over the age of 18 as of 2009. To see how much you can contribute to a TFSA, check out the TFSA guide on the CRA website, and use the "annual TFSA dollar limits" for all the years you were older than 18.

You can withdraw any amount at any time, but it doesn't mean you get that contribution room back. The way it works is that the amount of the withdrawal will be added to the contribution limit for the following year.

And lastly, you have to be a Canadian citizen and 19 years of age (or 18, depending on your province) to open up a TFSA.

Best options for opening one: You’ll want to open one at whichever financial institution you want to do your investing with. You can open TFSAs at all the big banks, or digital institutions like Questrade, or Wealthsimple. You can have open as many TFSAs as you want, as long as you’re not going over your available contribution limit between all of them combined.

Registered Retirement Savings Plans (RRSPs)

What is it? An RRSP is an account designed primarily for retirement, where the money you contribute can be deducted from your taxable income each year, and you defer paying tax until you take the money back out.

What can I use it for and when? You guessed it – this account is mainly for use once you’re retired. Otherwise, the amount you withdraw will be added to your employment income at tax time, and you’ll have to pay tax on that whole amount (ouch!).

If retirement is… far away, there are two other times you can withdraw money from your RRSP— 1) through the First Time Home Buyers Incentive program, you can use up to $25,000 of your retirement savings for a down payment, and 2) you can take out $10,000 per year if you go back to school.

When you actually retire is up to you (and how much money you need to save to get there). Once you actually kick back and begin enjoying retirement, the money that comes out of your RRSP will be taxed as income.

Are there any rules? The contribution limit for RRSPs is usually 18% of your income that you reported on your taxes the previous year.

Best option for opening one: Similar to a TFSA, you’ll want to open an RRSP at whichever financial institution you want to do your investing with. There’s often the option to open an RRSP through your work (and they might even help contribute to it!) that’s definitely worth looking into. You can have multiple RRSPs at different financial institutions, as long as you’re not going over your contribution limit between all of them combined.

Okay, here’s the TL;DR version:

HISA > Shorter term, made up of your money (vs investments), interest rate you should aim for = 2%

GICs > Short-to-Medium-term, goes inside another account, interest rate you should aim for = 2.45-2.75% based on the maturity date. Watch out for penalties.

TFSA > Medium-to-long term, money grows tax free, can be made up of your money or investments. Keep an eye on your contribution limit.

RRSP> Long term, made up of investments, the company you work for can sometimes contribute. Keep an eye out for the RRSP deadline each year.

Non registered account> Great for if you’ve maxed out your registered accounts (RRSP/TFSA), no contribution or withdraw rules.

I’ve chosen the best option for me. Now what?

Once you picked the best savings account for you and your lifestyle, it’s time to invest your money in these accounts! Contact your financial advisor or use a robo-advisor to get the funds invested the right way for you.