What is a savings account? Information guide 

Opening a savings account is a big milestone in everyone's life.

Maybe your parents took you to the bank when you were a child to have somewhere to put birthday cheques. Or perhaps you opened one as a teenager, when you got your first part-time job, to stash funds away for a prom dress. Or possibly you waited to open one until after university, or well into your adulthood, when you started earning some real cash.

No matter when in your life you opened one, we bet it was an exciting moment, because it signified you had surplus capital, even just a few dollars, beyond what you needed for your day-to-day expenses.

If you haven't gotten around to opening one yet, we get it — some Canadians prefer to keep excess funds in their chequing account. But most of us prefer the higher interest rates offered by a savings account and the added psychologically benefit of having a designated and separate account to put aside money.

Here's exactly how a savings account works.

A savings account is a bank product that offers interest on deposits. The bank pays you a small percentage as an incentive to leave your money in. Interest rates fluctuate throughout the year and may be tied to your balance.

A savings account, unlike a chequing account, is designed for limited transactions. It’s the ideal place to put money aside for short to medium-term needs, such a down payment, a vacation, a car or an emergency fund.

A savings account at a Canadian bank is one of the most secure and accessible places you can hold your money. Deposits held at a savings account are eligible for the Canada Deposit Insurance Corporation (CDIC) insurance up to $100,000 and you can withdraw your funds at any time. Unlike other investments you're at almost no risk of losing your money. And unlike equally low-risk investments like GICs, you can get your money anytime with no hassle.

It's hard to think of a safer or more liquid investment.

A savings account can be either non-registered or registered (such as a TFSA savings account where you wouldn't be taxed on any interest earned).

Some savings accounts, like the Scotiabank Money Master Savings account have no monthly account fees. Since a savings account is meant for accumulating funds instead of spending funds, you're likely to have a small number of transactions included for free.

In the Money Master Savings account, for example, you're able to deposit as many cheques as you want through the mobile app every month, as well as move money back and forth online from your chequing accounts through ABM, online, mobile or telephone banking. But if you choose to buy something at a store on your debit card from your savings account then it will cost you $5.

That's why you'll almost certainly need a chequing account in addition to a savings account.

It couldn't be easier to use your savings account. Here's all the different ways you can access it:

• Debit card
• Mobile app
• Branch advisor
• ABM
• Online transfers from your chequing account at the same financial institution

Let's go through each of these in depth.

Depositing money to your savings account is easy. You can likely do most deposits from your living room these days if you have a smart phone or computer.

Cheques can be deposited by taking a picture through the mobile app. Of course, you can also head to an ABM or branch advisor.

And since your chequing and savings accounts are linked online, you an easily move money to and from with the click of a button. For example, if you have a savings plan or goal, you can set up an automatic deposit from your chequing to your savings every other Friday, or manually transfer the money in.

You can also sign-up for direct deposit with your work or the government with a simple form. That way, for instance, a tax refund would go straight into your savings account.

Unless you have cash to deposit, there's really no need to actually travel to an ABM or a bank branch anymore.

Access to your money is just as easy as depositing funds. Here's a few different ways you could go about it:

• Transfer money online to your chequing account so you can pay bills, write cheques and e-transfer funds. Since your chequing has a higher transaction limit you can skirt fees by doing this.
• Pay with your debit card at the cash register by choosing the "savings" option (but note this may trigger a fee).
• Withdraw cash at an ABM, teller, or get cash-back at a grocery or drugstore with a purchase (but note this may also trigger a fee if you are using an ABM of a different bank than yours or if you are withdrawing more than what is allowed with your specific savings account).

While a savings account is an excellent, low-risk, liquid place to hold money it's not the only option. And since interest rates are at historic lows right now you may get the itch to earn a greater return on your funds. So, depending on your needs, and how much money you have socked way, you may want to consider some alternatives. These options offer slightly higher interest rates in exchange for slightly less liquidity or no in-person service.

Online savings accounts are perfect for tech-savvy consumers who want higher interest rates and lower fees. Online savings accounts don't offer in-person services and so they can keep their costs low and funnel those cost savings into higher interest payments. Let's be honest — you probably do most of your transactions online anyway these days, so why not go the full hog?

Online savings accounts allow you to link up accounts at other institutions and transfer funds with the click of a button. And since you can maintain a chequing account at a bigger bank that has branches you can have the best of both worlds.

Just like any other savings account your deposits up to $100,000 are eligible to be insured by CDIC. For online savings accounts at credit unions you'll likely have provincial deposit insurance which is similar.

Certificates of Deposits are short-term investments where your principal is guaranteed and there is a fixed interest rate and term. The minimum deposit is around $10,000 and they are not covered by the CDIC.

Similar to this option is a GIC, which is eligible to be insured by CDIC up to $100,000. Your money is locked in for a set period of time, and you know the exact interest rate you will get. Your principal is guaranteed.