My father and I shared a laugh over Thanksgiving dinner this weekend. While going through his files recently he found this 1993 brochure from National Trust (which later merged with Scotiabank) advertising a five-year GIC at 12% interest.
Clearly Toronto in 1993 was some kind of bizarre fantasy world. The Blue Jays won the World Series (again), the Leafs came within one goal of the Stanley Cup finals, and Bay Street was paying 12% on GICs during a year that saw 1.7% inflation.
Back here in the real world, most RRSP investors still like to keep at least a small part of their portfolio in cash. They may want to save their stock, bond or ETF distributions for several months before reinvesting them. Or they may want to “keep some powder dry” as they wait for opportunities to buy into an asset class that looks underpriced. Either way, it helps to have a safe place where you can stash some cash and earn a wee bit of interest, even if it isn’t 12%.
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 fees or service charges. 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 (RBF2001) has the highest advertised rate at 1.20%, with a minimum deposit of $1,000.
- Manulife Investment Savings Account (MIP510) pays 1.15% interest with no minimum deposit.
- Renaissance High Interest Savings Account (ATL5000), affiliated with CIBC, pays 1.15% and has a minimum of $1,000.
- Dundee Investment Savings Account (DYN500) pays 1.15% with no minimum deposit.
- Altamira High-Interest CashPerformer (NBC100), affiliated with National Bank of Canada, pays 1.10% with a minimum investment of $1,000.
Before using any of these products, call your discount brokerage to ask about them, quoting the FundServ numbers listed above. Your brokerage likely won’t offer all of them, and it may not allow you to trade them easily online. (When I made a deposit in the RBC fund through Scotia McLeod Direct Investing, I had to place the order by phone and it took two days to settle.) Brokerages may set their own minimum deposits, and may charge early redemption fees.
If you’ve had good or bad experiences with the investment savings accounts listed here, or if you have suggestions for other ways to stash cash in a registered account with a discount brokerage, please share your tips with your fellow readers.
[Note: For an updated list of high-interest savings accounts, as of November 30, 2011, see this post from Canadian Capitalist.]
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The Credit Unions have unlimited guarantees on their savings products, in BC at least.
@gsp: that is interesting that TD now has an ISA (though offers nothing added since the rate is inline with the many others). But the IBN100 from ICICI sound compelling @ 1.4% – though I am not able to get a quote for this product at TD Waterhouse – does anyone else see this offering at their brokerage?
Can’t see IBN100 at TDW either, guess they are in no hurry to add it in their online system. It’s been available by phone for at least a month from what I gather. Initially not available in RRSP accounts but that should come if it hasn’t already.
The article gets our attention with “five-year GIC at 12% interest”, but the brochure’s fine print shows 12% as the “fifth year rate”, so it was not paying 12% for the entire term.
A current example of something similar is TD Canada Trust’s “5-Year Stepper GIC” with rates of 0.95%, 1.15%, 1.50%, 2.25% and 4.05% for years 1 to 5 respectively, and an effective annual yield of 1.974%, which is less than half of the fifth year rate.
Apparently for IBN100 it is at TDW but you have to speak to a rep. Rate is now 1.3%
Note that TDW has come out with 3 funds of their own (TDB8150, TDB8155, TDB8159) considered separate for CDIC purposes. They pay 1.25% currently and are available on-line.
Say I have 15k waiting and doing nothing in my Questrade account (waiting for opportunities – money market funds useless now and I want the money available quickly if I need to jump on something). Could I just go and buy the RBC one right away? On their webpage they say no fees but they are sneaky sometimes so I thought I would check with you guys first.
thanks a million,
J
@Jerome: There’s nothing sneaky about these funds. They may have a minimum holding period, and your brokerage may charge you a fee to buy them (I believe Questrade charges for mutual fund purchases) but there are no other fees.
Questrade really, really sucks for the tsx-v. I pulled my rsp account from them a week after I started. I’ve been with credential direct for a while now. I recommend them.
Am parked in Manulife Trusts’s MIP710 at 1.3%. Just stopped by to see if anyone had a higher rate.
I just checked with Questrade and yes they would charge MF purchase commissions, but I can’t find the funds online in the fund lookup tool! Obviously their agents were unhelpful so I was wondering, did any of you guys buy these on Questrade? If so, how did you do it?
@greg
I just moved my RRSP over to Questrade and really want to keep my money in Canadian dollars. I tried the HISA with Questrade and they don’t have it. Not really interested in buying mutual funds first their is the buy fee and then the annual MER fee.
Wondering now about the fees to move from Questrade to Credential Direct…
I just checked Questrade and it definitely has these HISA accounts available.
good! how can you buy them?
I just figured this out too.. In myQuestrade, go to the My Mutual Funds -> Order Entry
Mutual funds are $9.95/trade flat fee in Questrade… but if you have let’s say 10k in a savings account, your interest in 1 month will take care of the $9.95 flat fee and the funds are ready to go when you see an opportunity on a dip.
awesome! for some reason they dont appear in the search tool but they do appear there. go figure. which one did you get and for which reason?
I’ve always wanted to use this site, thanks for giving me an opportunity!
http://lmgtfy.com/?q=manulife+interest+savings+account
Sorry for the sarcastic post above, what I meant above is you really just have to research the interest rates yourself. Use google and you’ll find they range from 1.20-1.25% right now. So there is a 1 time fee in Questrade of $9.95, this isn’t bad at all. I think some people are getting scared off because it is listed under “Mutual Funds” and figure there must be a MER buried somewhere in there but HISA’s have no MER. I am new to Questrade but just recently used their online chat help a couple times and they have been very helpful. I’d stick with Questrade and if you ask specific questions, the online chat help is great.
Thanks for the tip. This is exactly what I was looking for FYI the RBC Mutual Fund code is RBC2010
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