Many investors like to keep at least a small part of their portfolio in cash. They may want to save their ETF distributions for several months before reinvesting them, or they may want to keep some money on hand for short term needs. Either way, it helps to have a safe place where you can stash some cash and earn a wee bit of interest.
GICs and money market funds have long been the usual places to park cash in a registered account. The problem is that GICs are are not liquid: they’re not cashable without forfeiting the interest, and you can’t add to them each month. Money market funds are more flexible, but these days their yields can be neatly rounded off to 0% after fees. Fortunately, there are alternatives, though many investors don’t even know they exist.
An alternative to money market funds
Several Canadian financial institutions offer high-interest invest savings accounts that can be held inside a registered account at a discount brokerage. These products have a FundServ code, which means they can be bought and sold just like mutual funds. These little-known products combine the best features of GICs and money market funds.
First, investment savings accounts have no MER and no commissions to buy or sell. They pay a fixed rate of interest, usually calculated daily and paid monthly. You can add or withdraw money at any time, and transactions usually settle the next business day. Perhaps best of all, investment savings accounts are fully insured by CDIC for up to $100,000.
Here are some options to consider for the cash component of your portfolio:
- RBC Investment Savings Account (RBF2010) is offered to RBC Direct Investing clients.
- TD Investment Savings Account (TDB8150) would be your choice at TD Direct Investing.
- BMO High Interest Savings Account (AAT770) is available through BMO InvestorLine.
- Renaissance High Interest Savings Account (ATL5000) is affiliated with CIBC.
- Hollis Investment Savings Account (DYN500) is available to clients of Scotia iTrade.
- Altamira High-Interest CashPerformer (NBC100) is affiliated with National Bank of Canada.
Before using any of these products, call your discount brokerage to ask about them, quoting the FundServ numbers listed above. Your brokerage won’t offer all of them, and it may not allow you to trade them easily online (you can try to place an order in the mutual funds section). The products all have minimum deposits and your brokerage may charge early redemption fees.[Note: For an updated list of high-interest savings accounts, as of January 2014, see this post from Canadian Capitalist.]