I've used both leather and wool. I like the wool more now, easier to work with. This is probably the same canteen you have:
That's an old scrap of milsurp wool blanket. I ran a leather strap around the bottom and stitched it to the wool. The canteen now has a good sized dent in it from a fall but the cover held up.
I also put a boiled-leather pouch on it. Handy for keeping some trail rations in, and it's one less thing to carry.
