The best way to reach a saving goal is by having a thought-out strategy to get there—and that starts with knowing which of the saving tools available is best for your goals.  

Let’s compare two popular choices: term deposits and high-interest savings accounts (HISA).

What is a term deposit?

A term deposit—also known as a Guaranteed Investment Certificate or GIC—is a cash investment which earns interest over a set period between 30 days or 5 years. 

There are redeemable term deposits, which means you can cash it out before the end of the term, and there are also non-redeemable term deposits, meaning your money is locked in for a fixed period. This can help you avoid the temptation to dip into your savings before they’re ready to spend.

Term deposits are naturally low-risk investments; with a guaranteed rate of return, you will always earn back your principal investment. But you can also choose a market-linked GIC, which means you can potentially earn more depending on how the market performs.

See how term deposits can fit into your financial plan in our term deposit guide.

What is a HISA?

Now, let’s pivot for a moment and talk about HISAs.  A high-interest savings account—or HISA for short—is a savings account that offers a higher interest rate than other accounts; others have much lower interest rates, or no interest rate at all. 

This means you could grow your savings just by having them stashed away in your HISA, and that’s without considering the interest you generate just from contributing to it on a regular basis. The money in your HISA is also accessible any time you need it, making this account an easy, convenient place to store savings until you’re ready to spend. 

See what a HISA can do to nurture your savings in our HISA guide. 

What do term deposits and HISAs have in common?

Both sound like they have a lot to offer when it comes to saving. So, naturally, they also have a few things in common, too.

Virtually no risk: Both are designed to grow your savings, and don’t put them at risk from market changes. This makes either a great option for more conservative savers or investors because they offer more peace of mind and security than other investments. 

Available in registered accounts: Both are also available in registered accounts, including the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP). Some registered accounts have benefits that could help you save more in the long run, including tax deductions and tax breaks.

What makes term deposits and HISAs different?

As you can see, these two saving options have a few things in common. But there are also some differences to keep in mind.

Open to market changes: Term deposits have opportunities to earn more as the market performs better.  If this sounds intriguing, you can explore market-linked GICs as an opportunity to try investing with lower risk.

Set terms: HISAs are open-ended accounts; you don’t have to lock any of your funds away for a set period. But term deposits—as their name suggests—have set terms. While these can be as short as 30 days or as long 5 years, how long your money is stowed away for is something to consider. If your goal is to save for the long-term, you may want an option where you can lock your savings away, so you aren’t tempted to withdraw it.

Access to cash: With a HISA, you have the freedom to withdraw or add to your savings anytime. But you should know what is included in your HISA and try not to use it as a day-to-day account if you can help it. While some term deposits are available as redeemable deposits, these options tend to yield lower interest rates than their non-redeemable counterparts. 

Access to interest: Any interest you earn on that term deposit is counted as taxable income each year, but you won’t receive those returns until the end of the term—which could be as long as 5 years from now, depending on the term length. If reducing your taxable income is a priority, consider placing a term deposit in a TFSA. This way, any interest you earn won’t be taxable, giving you peace of mind knowing your savings are growing tax-free. Before you invest in a TFSA, know your contribution limits and how much room you have left.

Which is the best fit for your goals?

Understanding how each one can help you achieve your goals will help you decide which saving tool to go with. 

Imagine you’re saving for your dream vacation: a HISA can help you grow your savings by steadily adding to it, while a term deposit keeps your money safely set aside and growing until you’re ready to depart. 

Let’s get into more specific examples of use-cases for each.

Why choose a HISA?

Term deposits require a minimum amount of $500 to start. Meanwhile, you can open a HISA with zero savings and start saving from there. That’s where a HISA can be a stepping stone to build up savings for another tool, like a term deposit, later. If you’re not there yet, it doesn’t mean you won’t be one day. You just need some time to grow your savings.

A HISA can also be a great place to save, or park funds, for bigger, recurring expenses. Having savings set aside for bills like property taxes or car maintenance makes paying for it less stressful overall. 

They can also be a quite helpful saving tool if you’re uncomfortable with risk. Your HISA will generate more interest as you add more to it, and those savings stay safe and secure in your account. (Not to mention, you don’t have to wait to access that cash.)

Why choose a term deposit?

A term deposit might be a great next step to consider for the savings you built up in a HISA that you want to continue nurturing, but don’t want to withdraw from. This is because term deposits start with a lump sum payment and are closed during the term. 

If you want more access to your money, but still have the benefits of term deposit growth, you may want to consider laddering. Rather than putting all your savings in one term deposit, you instead split it into five equal parts. Then, each of those parts goes into its own term deposit: one for 1 year, another for 2 years, and so on up until you get to 5 years. 

Every year, one of your term deposits will mature, and you can then choose to invest in another term deposit or use those savings as you need.

Read our comparisons of term deposits and mutual funds, and how term deposits, mutual funds, and high-interest savings accounts fare against one another.

You have options for saving

Whether you’re considering a term deposit, a HISA, or even another savings tool, that decision depends on what your goals are, and how much of your money you want to stow away.

Already a member? You can open your HISA or term deposit through online banking or in our mobile app. But, if you want to talk to someone to learn more, we have your back.

To learn more, contact us by email, phone, or stop in at a branch. 

Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the prospectus before investing.  Unless otherwise stated, mutual funds, other securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated.