4 Places to Stash Cash When Saving For Short-term Goals

When it comes to saving money for specific financial goals, there’s more to it than funnelling cash into a generic savings account.

Saving for a dream vacation, wedding, new car or a home remodel? If so, then different goals require different savings strategies.

Unlike the long game of saving for retirement, the best way to save for shorter-term goals — usually five years or less — depends on potential returns, fees and accessibility.

With that in mind, here are four ways to start saving today. Your (near) future self will thank you.

1. High-interest savings account (HISA)

Goal time frame: 2 years or less.
How it works: High-interest savings accounts earn more interest than traditional savings accounts, so your money grows slightly faster. However, HISA rates can fluctuate with market conditions.
Pros: Easy to access funds and good for emergency savings or other short-term goals.
Cons: May offer lower interest rates than other savings vehicles, such as guaranteed investment certificates (GICs).
Fees: Some HISAs may have monthly account maintenance fees, so shop around and compare costs.
Current rates: Current HISA rates from top banks in Canada ranged from 1% up to 6%, at the time of this writing.

As you compare HISAs, consider online banks as well as Canada’s Big Five banks, says Morgan Adams, a certified financial planner (CFP) and owner of Tier One Planning in Guelph, Ontario.

Online-only banks typically offer higher interest rates on their savings accounts because they don’t have the overhead expenses of more traditional brick-and-mortar banks, Adams notes.

2. Tax-free savings account (TFSA)

Goal time frame: 2 to 5 years (or longer, if needed).
How it works: A tax-free savings account is a government-registered savings account with a contribution limit that changes each year. For 2024, the Canadian Revenue Agency’s annual TFSA limit is $7,000. You won’t have to pay taxes on interest earned or withdrawals that fall within the contribution limit.
Pros: Flexibility to withdraw and add more money up to your contribution limit. Earn tax-free interest on investments.
Cons: Contribution limits may not be high enough to achieve a larger short-term goal.
Fees: Opening and maintaining a TFSA doesn’t involve fees, but you might have to pay fees on investments held within your account, such as for mutual funds.

“The way I explain a TFSA to a client is it’s the house; it’s the structure. You can put any piece of furniture you want in that house,” Adams says. “The TFSA itself is going to do nothing for you. You could deposit money in the TFSA, but it’s literally just cash sitting there.”

Whatever investment you put into your TFSA — a HISA, mutual fund, stock or bond — you can always recontribute money back into the account (and then some) to maximize your yearly allocation, Adams points out.

3. Non-registered accounts

Goal time frame: 5 years or less (highly flexible).
How it works: Non-registered accounts, also called “open accounts,” are subject to tax. Investments in these accounts can earn interest or dividend income that is taxed when it’s earned or realized, however, you won’t pay taxes on withdrawals, according to Fidelity. Non-registered accounts are worth considering if you’ve maxed out your TFSA or other registered account.
Pros: Easy access to your money, convenient for routine savings or small goals and no contribution limits.
Cons: Any income earned is subject to taxes, plus there are no tax benefits compared to registered accounts. Also, funds in a non-registered account won’t be protected from creditor claims in a bankruptcy.
Fees: You might have to pay monthly maintenance fees for a non-registered account, so compare your options first.

4. Guaranteed investment certificates (GICs)

Goal time frame: 1 to 5 years.
How it works: GICs, or “term deposits,” allow you to put money into an account for a set period at a guaranteed interest rate. The catch: You can’t touch your money before the term ends, or you’ll pay an early withdrawal penalty.
Pros: Guaranteed return on your investment, making it ideal for predictable short-term savings goals.
Cons: Limited liquidity because your money is locked in for the term. Plus, interest rates may not be as competitive as other options, and some banks, like TD Bank and Scotiabank, require minimum deposits of $500 or more.
Fees: GICs don’t have account maintenance fees, but you could face a steep early withdrawal penalty if you pull your money out before your term ends, so beware.
Current rates: GIC rates in Canada started at 4.65% for a 5-year GIC and up to 5.45% for a 1-year GIC, at the time of this writing.

How to choose the right savings method

Ultimately, you’re in the driver’s seat when it comes to saving for short-term goals. Here are some factors to consider as you narrow down your choices.

Consider your risk tolerance

HISAs and TFSAs are considered low-risk options that also tend to have lower returns. Meanwhile, GICs offer a guaranteed rate of return in a short time frame, but you can’t access the money early without paying a penalty.

Whatever savings vehicle you use, first consider how comfortable you are with risk and choose accordingly.

“I would say first and foremost, it’s got to fit your situation. It’s got to fit your risk tolerance,” Adams says. With less than two years to save, you’ll likely choose a HISA or a cash account. If you’ve got up to five years, you may be able to take a little bit of risk from a volatility perspective. Then, “as you get closer to the date, you pull the trigger to go to a HISA where you’re getting paid something,” Adams says.

Think about returns

Compare the interest rate or guaranteed returns of the options above to maximize your savings. If you have a few years, it might be worth parking your money into a savings vehicle that will earn a higher rate of return. However, if you’re short on time, consider a savings method that offers you easier (and quicker) access to your money.

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