XEQT vs Savings Account in Canada: Why Your Cash Is Losing Value

I spent my entire twenties keeping almost every dollar I earned in a savings account. I had a “high-interest” account at one of the Big 5 banks that paid something like 1.5%, and I thought I was being responsible. Every time someone mentioned investing, I felt a little tug of anxiety and told myself I’d “look into it later.”

Then one afternoon I sat down with a compound interest calculator. I plugged in how much I’d saved over eight years, compared what I actually earned in interest to what a simple global index fund would have delivered, and felt my stomach drop. The gap was over $40,000. I hadn’t done anything wrong in any dramatic way – I just kept my money in the wrong place. Comfort cost me a small fortune.

If you’re reading this, there’s a good chance you have most of your savings sitting in a bank account right now. Maybe a chequing account earning 0%, or a “high-interest” savings account earning 2-3% if you’re lucky. But that money isn’t just sitting still. It’s quietly shrinking, every single day, thanks to inflation.

This page will show you exactly what that’s costing you, why XEQT (a single all-in-one ETF holding 9,000+ global stocks) is a dramatically better option for long-term money, and when a savings account actually does make sense.

1. What Canadian Savings Accounts Actually Pay

Let’s start with the uncomfortable truth about savings account rates in Canada. Here’s what the major banks are offering right now:

Big 5 Bank Savings Accounts

Read those base rates again. 0.01%. On $10,000, that’s one dollar per year.

Online banks like EQ Bank (2.5-3.0%), Wealthsimple Cash (3.5-4.0% with premium), and Tangerine (up to 4.0% on promos) do better. But even the best high-interest savings accounts in Canada top out around 2.5-4.0%, and those rates are trending downward as the Bank of Canada continues cutting its policy rate.

The bottom line: Most Canadians earn between 0.01% and 3% on their savings. If you’re at a Big 5 bank without a promotional rate, you’re almost certainly earning next to nothing.

2. What XEQT Has Returned Historically

Now let’s look at the other side of the equation. XEQT is iShares Core Equity ETF Portfolio – a single ETF that holds over 9,000 stocks across 40+ countries. You buy one ticker and you own a slice of the entire global economy.

Here are the key numbers:

• MER (Management Expense Ratio): 0.20% per year
• Historical average return of global equities: 8-10% per year over long periods
• XEQT since inception (2019): Approximately 10%+ annualized (includes both the COVID crash and recovery)
• Worst-case single year: Down 20-35% in a severe crash
• Best-case single year: Up 20-30% in a strong market

The critical caveat: XEQT’s returns are not guaranteed and not smooth. In any given year, you might be up 25% or down 30%. That’s the price of admission for earning 8-10% over time instead of 2-3%.

But here’s what matters: over every 20-year rolling period in modern history, a globally diversified stock portfolio has delivered positive returns. Every single one. The short-term turbulence is temporary. The long-term growth is permanent.

If you’re worried about timing, I wrote about whether now is a bad time to invest. Spoiler: it almost never is, as long as your timeline is 5+ years.

3. The Real Comparison: $10,000 Over Time

This is the table that changed my mind about keeping cash in a savings account. Let’s say you start with $10,000 and contribute absolutely nothing else. You just let it sit. Here’s what happens at different rates of return:

Your $10,000 in a 2% savings account grows to $16,406 after 25 years. In XEQT at 8%, it grows to $68,485 – a difference of over $52,000 on just a $10,000 starting amount with zero additional contributions. At 10%? $108,347. Nearly seven times the savings account result.

Now add monthly contributions

The gap becomes truly staggering when you contribute regularly. Let’s say you invest $500/month:

After 25 years of investing $500/month, you will have contributed $150,000. In a 2% savings account, that grows to $194,510. In XEQT at 8%, it grows to $447,107. The difference: $252,597.

A quarter of a million dollars. A decade of retirement. The difference between retiring at 58 and retiring at 68. Same $500/month – you just put it somewhere different.

This is what I mean when I say your cash is costing you a fortune. The money you “saved” by avoiding the stock market isn’t saved at all. It’s lost to the silent drag of low returns.

4. Inflation: The Invisible Tax on Your Savings

Here’s the part that makes savings accounts truly dangerous for long-term money: inflation.

Canadian inflation has averaged roughly 2-3% per year historically. In recent years, it spiked above 6% before settling back down. Even at the Bank of Canada’s 2% target, inflation is a relentless force that erodes the purchasing power of every dollar you hold in cash.

Let’s do the math:

• Your “high-interest” savings account pays 2.5%
• Inflation is running at 2.5%
• Your real return (after inflation) is 0%

You have more dollars in your account, but those dollars buy exactly the same amount of stuff. You’ve made no progress. You’ve just been treading water.

Now consider that many Canadians earn far less than 2.5%. If you’re at a Big 5 bank earning 0.05% and inflation is 2.5%, your real return is -2.45% per year. Over 10 years, your $10,000 has the purchasing power of roughly $7,800. Your balance still says $10,050, but in terms of what you can actually buy, you’ve gone backward.

XEQT, on the other hand, has historically returned 8-10%. Even after 2.5% inflation, your real return is 5.5-7.5% per year. Your money is genuinely growing, not just in nominal dollars but in real purchasing power.

Real (inflation-adjusted) comparison over 25 years:

The Big 5 savings account doesn’t just fail to grow your money – it actively destroys almost half its value over 25 years when you account for inflation. The high-interest savings account basically breaks even. Only XEQT delivers the kind of real growth that actually builds wealth.

Inflation is the tax you never see on your bank statement. And it’s the reason a savings account is one of the worst places to keep money you won’t need for years.

5. The Psychological Comfort Trap

I get it. I really do. Savings accounts feel safe. There’s something deeply reassuring about:

• Seeing your balance go up every month (even if it’s by $3)
• Never seeing a red number on your statement
• CDIC insurance protecting up to $100,000 per institution
• Instant access to your money whenever you want it
• Zero complexity – no tickers, no markets, no news to follow

These psychological benefits are real. I felt them for years. Every time I logged into my banking app and saw my savings balance slightly higher than last month, I felt a small hit of satisfaction. I was “saving.” I was being “responsible.”

But that comfort was costing me roughly $5,000-$10,000 per year in missed investment growth. And I didn’t feel that cost at all, because opportunity cost is invisible. You never get a bank statement that says, “Hey, you missed out on $8,000 this year by not investing.”

The hidden psychology at work

There’s a well-studied cognitive bias called loss aversion – losses feel about twice as painful as equivalent gains feel good. A $5,000 drop in your XEQT portfolio stings way more than a $5,000 gain satisfies. This pushes people toward savings accounts, where losses are impossible, even though the long-term cost is enormous.

There’s also status quo bias – the tendency to stick with what you’re already doing. Moving money from a savings account to an investment feels risky. Doing nothing feels safe, even when the math says otherwise.

The uncomfortable truth: the feeling of safety is not the same as actually being safe. A savings account protects you from short-term volatility while exposing you to the far more damaging long-term risk of not having enough money when you need it. As I covered in the XEQT vs GICs comparison, the “safe” option is often the most expensive one.

Your savings account is not keeping your money safe. It’s keeping your feelings safe while your money slowly evaporates.

6. When a Savings Account IS the Right Choice

After everything I’ve said, you might think I believe savings accounts are useless. I don’t. They have a genuine role in a smart financial plan. Here’s when they earn their spot:

Your emergency fund

Every Canadian should have 3-6 months of essential expenses in a savings account or similarly safe, liquid vehicle. This is non-negotiable. If your furnace dies, you lose your job, or you have an unexpected medical expense, you need money you can access immediately without selling investments.

The entire point of an emergency fund is that it’s there when you need it, regardless of what the stock market is doing. If XEQT is down 30% the same month you lose your job, you don’t want to be forced to sell at the worst possible time.

For more on this, check out emergency fund vs investing – it walks you through exactly how much to keep in cash and when to start investing the rest.

Short-term goals (under 3-5 years)

If you’re saving for something specific within the next 3-5 years – a down payment, a car, a wedding, tuition – a savings account (or a GIC) is the right home for that money. The stock market can and does drop 20-30% in any given year, and if you need the money during a downturn, you’ll be forced to crystallize those losses.

The rule of thumb: if you need the money in less than 3 years, keep it in cash. If you need it in 3-5 years, you could go either way depending on your risk tolerance. If you won’t need it for 5+ years, invest it.

Known upcoming expenses

Got a tax bill coming in April? Tuition due in September? Property taxes in June? Keep that money in a savings account. These are not “investment” dollars – they’re “spending soon” dollars that need to be there when the bill arrives.

A psychological bridge while you learn

If you’re brand new to investing, it’s okay to keep some extra cash in savings while you educate yourself. Just set a deadline – 1-3 months to read and get comfortable. Don’t let “I’m still learning” turn into five years of earning 0.05%.

7. The Hybrid Approach: Savings Account + XEQT

The best financial plan for most Canadians isn’t “all savings” or “all XEQT.” It’s a thoughtful combination of both, with each serving a specific purpose.

Here’s the framework I use and recommend:

Bucket 1: Emergency fund (savings account)

• Amount: 3-6 months of essential expenses
• Where: High-interest savings account (EQ Bank, Wealthsimple Cash, or similar)
• Goal: Safety and instant access. You’re buying insurance against life’s surprises, not chasing returns.

Bucket 2: Short-term goals (savings account or GICs)

• Amount: Whatever you’re saving for in the next 1-3 years
• Where: Savings account for under 1 year, GICs for 1-3 year goals
• Goal: Capital preservation. You need this money on a specific date, so market risk is unacceptable.

Bucket 3: Long-term wealth building (XEQT)

• Amount: Everything else
• Where: XEQT inside a TFSA first, then RRSP, then non-registered
• Goal: Maximum growth over 5, 10, 20, 30+ years. This is the money that builds real wealth and funds your retirement.

The key insight: most Canadians have way too much in Buckets 1 and 2, and not nearly enough in Bucket 3. If you have $80,000 in a savings account “just in case,” you probably need $15,000 as an emergency fund and the other $65,000 should be in XEQT, working dramatically harder for your future.

8. How to Move From All-Savings to Investing (A Gradual Approach for Nervous Savers)

If you’ve been keeping all your money in a savings account and the idea of investing feels overwhelming, here’s a step-by-step approach that eases you in without requiring you to leap off the deep end.

Step 1: Define your emergency fund target

Calculate 3-6 months of essential expenses (rent/mortgage, groceries, utilities, transportation, minimum debt payments). That money stays in your savings account. Period.

Step 2: Separate your money into buckets

Everything above your emergency fund target: ask yourself, “Do I need this in the next 3 years?” If yes, keep it in savings. Everything else is your investable surplus.

Step 3: Open a brokerage account

Wealthsimple is the easiest option for beginners – free, commission-free, and takes about 10 minutes. Start with a TFSA if you have room.

Step 4: Start small with a test purchase

Buy a small amount of XEQT – even $100 or $500. This demystifies the buying process (it’s literally just typing “XEQT” and hitting buy) and gives you skin in the game.

Step 5: Move your investable surplus in chunks

You don’t have to transfer everything at once. If you have $50,000 above your emergency fund, consider moving it over in 3-6 monthly installments. Statistically, lump-sum investing beats dollar-cost averaging about two-thirds of the time, but if spreading it out helps you sleep at night, that’s a perfectly valid trade-off.

Step 6: Automate and stop checking

Set up a recurring transfer from your chequing account to your brokerage account. Even $200-$500/month adds up dramatically over time. Then stop checking your balance. Seriously. The biggest risk for new investors isn’t the market – it’s their own behaviour. Check once a quarter at most. The less you look, the better you’ll do.

The whole process should take about 3-6 months. After that, your ongoing effort is approximately zero – same as a savings account, but XEQT is working dramatically harder in the background.

9. “But What About HISA ETFs and Money Market Funds?”

If you’re aware of HISA ETFs (like CASH.TO, PSA, or CSAV), you might wonder where they fit. Think of them as an upgraded savings account – they pay 3-4%, which is far better than the 0.01% at a Big 5 bank, with easy liquidity.

But the fundamental math doesn’t change: for money you won’t need for 5+ years, XEQT is the dramatically superior choice. HISA ETFs are great for emergency funds and short-term goals, but they’re not a substitute for real investing. I wrote a full XEQT vs HISA ETFs comparison if you want the deep dive.

10. The Tax Angle: Why Your Account Type Matters

Where you hold your savings and investments has a massive impact on your actual returns, and it makes the savings account vs XEQT comparison even more lopsided.

TFSA (Tax-Free Savings Account)

Inside a TFSA, all growth is completely tax-free. The higher the return, the more valuable the tax-free treatment. A savings account earning 3% tax-free is fine. XEQT earning 8-10% tax-free is extraordinary – hundreds of thousands in tax-free growth over 25 years.

Do not waste your TFSA contribution room on a savings account. Your TFSA room is precious and limited. Fill it with XEQT.

RRSP

Same logic. RRSP contributions give you a tax deduction today, and all growth is tax-deferred. XEQT’s higher returns compound far more aggressively inside an RRSP than savings interest ever could.

Non-registered account

In a taxable account, savings account interest is taxed at your full marginal rate – the worst possible tax treatment. XEQT’s returns, on the other hand, come as a mix of capital gains (only 50% taxable) and eligible dividends (taxed at a lower rate). The after-tax comparison is even more brutal:

In a non-registered account, a high-interest savings account is losing money after inflation and tax. XEQT is gaining nearly 4% in real, after-tax terms. The gap is enormous.

The Final Verdict

Let me be direct: if you have money in a savings account that you won’t need for 5+ years, you are losing a fortune.

Not in a dramatic, headlines-blaring way. In a slow, silent, invisible way that you’ll only notice when you’re 55 and realize you have $200,000 less than you could have had. Inflation eats your purchasing power. Low returns mean your money barely compounds. Every year, the gap between your savings account balance and what it could have been in XEQT grows wider.

A savings account is a perfectly good tool for the right job: emergency funds, short-term goals, and known upcoming expenses. But it is a terrible tool for building long-term wealth, and using it that way is like using a butter knife to chop down a tree.

Your action steps

1. Today: Calculate your emergency fund target (3-6 months of essential expenses). Everything in your savings account above that number is your investable surplus.

2. This week: Open a TFSA with a commission-free brokerage like Wealthsimple if you don’t have one. It takes 10 minutes.

3. This month: Buy your first shares of XEQT. Even $500 to start. Just do it and see how it feels.

4. Going forward: Set up automatic contributions – $200, $500, $1,000/month, whatever you can afford. Automate it and stop thinking about it.

5. Every payday: Chequing for bills. Emergency fund topped up if needed. Everything else to XEQT. Repeat for 20-30 years.

That’s the whole strategy. It won’t make you feel like a Wall Street genius. But it will build more wealth than any savings account in Canada ever could, and the math is not even close.

Your savings account kept your money safe. Now it’s time to make your money actually work.

Related Reading

• What Is XEQT? The Ultimate Guide
• XEQT vs GICs: Why “Safe” Might Be Costing You a Fortune
• XEQT vs HISA ETFs: Growth vs Safety
• Emergency Fund vs Investing in Canada
• Is Now a Bad Time to Invest in XEQT?
• TFSA Investing Guide
• RRSP Investing Guide