Short Term vs. Long Term Savings
Let’s talk savings — and why not all savings are created equal.
Understanding the difference between short-term and long-term savings isn’t just financial jargon — it’s a game-changer for your money. Think of it like this:
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Short-term savings are your financial safety net. It's the money you might need soon — maybe for car repairs, a new phone, or a last-minute trip.
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Long-term savings? That’s your future you fund — things like buying a home, retiring comfortably, or starting that dream business.
Both are important, but they serve totally different roles. One keeps you steady when life throws surprises, and the other helps you build the life you really want.
Knowing when to use each one is like having a financial GPS. It helps you avoid detours, stress less, and make smart moves with your money.
​What is Short-Term Savings?
Short-term savings refers to money you set aside for needs or goals that are likely to happen within the next one to three years. It’s about accessibility and safety—you want the money to be available when you need it without much risk of losing it.
Examples of short-term savings goals:
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Creating or maintaining an emergency fund
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Saving for a vacation
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Paying for car repairs
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Covering back-to-school expenses or tuition for the upcoming semester
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Saving for a wedding or holiday gifts
Where to Keep Short-Term Savings
Short-term money should live in low-risk, liquid accounts. While these accounts may not offer huge returns, they’re designed to protect your funds and make them available quickly.
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High-Interest Savings Account (HISA): Earn more interest than a regular savings account—ideal for emergency funds or big purchases. A regular savings account, one that you are probably using right now only returns 1%/year. With a high yield savings account you get 5x more of a return on your money as they are set at 5%
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Example:
Planning a $3,000 vacation next year? Set up an EQ Bank HISA and automate $250/month deposits. In 12 months, your dream trip is paid for—no stress, no debt.
What is Long-Term Savings?
Long-term savings is money you put aside for goals that are years—often decades—into the future. These savings are usually focused on building wealth over time, and they often involve some level of investment risk in exchange for higher potential growth.
Examples of long-term savings goals:
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Saving for retirement
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Building a down payment for a home you want to buy in 5+ years
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Saving for your child’s post-secondary education
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Creating a financial cushion for early retirement or future business plans
Where to Keep Long-Term Savings
Because you won’t need this money right away, you can afford to put it into accounts or investments that offer higher returns over time, even if they come with some market risk.
RRSP (Registered Retirement Savings Plan): Reduces taxable income and helps you save for retirement.
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TFSA (Tax-Free Savings Account): Invest tax-free. Use it for both long- and short-term goals. Can take money out anytime.
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RESP (Registered Education Savings Plan): Government-matched savings for your child’s education.​
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Real Estate (No Down Payment Needed): Platforms like Addy let you invest in commercial real estate with as little as $1.
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Example:
Imagine you're 30 years old and want to retire by age 60. You decide to invest $300 per month into an RRSP that earns an average of 7% annually. After 30 years, you’ll have over $340,000 saved, thanks to compound interest—even though you only contributed $108,000 over time.
Key Differences Between Short-Term and Long-Term Savings
Here are the main contrasts to keep in mind:
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Timeline:
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Short-term: 0–3 years
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Long-term: 5+ years
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Risk:
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Short-term: Low or no risk
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Long-term: Can involve moderate to high risk (to achieve higher returns)
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Accessibility:
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Short-term: Should be liquid and easy to access
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Long-term: Often locked in or harder to withdraw without penalties
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Purpose:
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Short-term: To cover near-future needs or unexpected costs
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Long-term: To build wealth and prepare for major life milestones
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Why You Need Both
Think of short-term savings as your safety net and long-term savings as your ladder to the future. You need both to be financially secure.
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Short-term savings help you avoid going into debt when life throws you a curveball.
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Long-term savings help you achieve financial independence, retire comfortably, and make your big dreams come true.
Example:
If your car breaks down and you don’t have short-term savings, you may need to put the repairs on a high-interest credit card. But if you have an emergency fund, you can cover the cost without stress.
Meanwhile, long-term savings ensure that one day you’re not relying solely on government benefits like CPP or OAS for retirement.
Tips for Managing Both Types of Savings
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Automate your savings
Set up automatic transfers to separate savings accounts—one for short-term goals and one for long-term goals. This makes saving a habit, not a chore. -
Set clear goals
Write down exactly what you're saving for and when you’ll need the money. This helps you choose the right type of account or investment. -
Keep them separate
Avoid mixing your short- and long-term savings in the same account. It makes it harder to track progress and can tempt you to dip into your long-term money. -
Review regularly
Check in on your savings goals every few months. Life changes, and your savings strategy should too.
Final Thoughts
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Saving smart isn’t just about putting money away—it’s about knowing where and how to save based on your goals. Use short-term savings to stay secure in the present, and long-term savings to build the future you deserve.
At Capital Corner, our mission is to make financial education simple, actionable, and empowering. The right savings plan can be the foundation for everything—from peace of mind to financial freedom.
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