The easiest win in personal finance can be found in the interest rates paid on risk-free savings right now.
Interest rates climbed steadily last year, and they’re now expected to hold more or less steady for the remainder of the year. Whether you’re a saver putting cash away for future use or an investor looking for temporary parking, it’s possible to keep your money both safe and productive. What follows is a detailed look at five different ways savers and investors can keep cash safe while earning a decent rate of return.
High-rate savings accounts
Availability: Big banks, alternative banks operating online only, credit unions, trust companies – basically, everywhere
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Description: Alternative banks are upgrading their savings accounts to let clients pay bills and send e-transfers
Rate landscape: From 1.5 per cent at some of the big banks to as much as 3.8 per cent at alternative banks; rates are set according to how competitive a bank wants to be, with some influence from the Bank of Canada’s overnight rate
Deposit insurance: Deposit-taking banks should be members of Canada Deposit Insurance Corp., while credit unions have their own provincial deposit insurance plans
Cost considerations: There should be zero monthly account fees, but watch for charges on withdrawals, bill payments and e-transfers.
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Pro: Ideal for savings that you want to be able to access at a moment’s notice and must be kept risk-free
Con: You can do better on rates
Guaranteed Investment Certificates
Availability: See savings accounts
Description: Non-redeemable gets you the best rate, while cashable offers an early exit in return for a lower rate.
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Rate landscape: You shouldn’t have to break a sweat to get between 4 and 5 per cent for terms of one through five years; rates are influenced by government bond yields and competitive factors
Deposit insurance: See savings accounts
Cost considerations: Buyers pay no out-of-pocket costs; sellers are compensated directly by the GIC issuer
Pro: In an uncertain world, GICs are, as the name says, guaranteed
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Con: Non-redeemable means just that, so don’t buy unless you’re fully committed to locking in money
High-interest savings account (HISA) mutual funds
Availability: Almost all investment dealers, brokers
Description: Mutual funds that hold client money in bank deposits
Rate landscape: As high as 4 to 4.5 per cent or so; rates follow the direction of the Bank of Canada’s overnight rate
Deposit insurance: These funds typically offer Canada Deposit Insurance Corp. protection.
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Cost considerations: No fee to buy or sell in most cases; sellers are paid a small annualized fee in the area of 0.15 to 0.25 per cent by the issuer.
Pro: A pretty good mix of a decent rate with low risk, easy accessibility
Con: Not the highest possible yield for the cash in your investment account
High-interest savings account (HISA) exchange-traded funds
Availability: Almost all investment dealers, brokers
Description: ETFs that hold client money in bank deposits
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Rate landscape: Yields around 4.85 per cent; rates follow the direction of the Bank of Canada’s overnight rate
Deposit insurance: None, but deposits are held at big banks
Availability: Almost all investment dealers; three prominent exceptions are BMO InvestorLine, RBC Direct Investing and TD Direct Investing
Cost considerations: Brokers charge as much as $5 to $10 to trade ETFs; some brokers let you buy ETFs at no cost (although you pay to sell them), while some have no commissions at all; there is a management expense ratio of roughly 0.15 per cent or less on these funds – subtract this from the gross yield to get a net yield.
Pro: High rate, great liquidity in that you can buy and sell like a stock
Con: Paying brokerage commissions cuts your net return
Money market funds
Availability: Most any investment dealer
Description: Mutual funds that hold government Treasury Bills and short-term corporate borrowings
Rate landscape: In the mid-4-per-cent zone; rates track what’s happening with T-bill yields
Deposit insurance: No
Cost considerations: Some brokers have commissions to buy mutual funds – check first. Management expense ratios can be in around 0.2 per cent.
Pro: Vies with HISA mutual funds as a cheap, safe way to park cash in an investment account
Con: Difficult to survey the various products to compare yields
A few resources for comparing rates
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