[Note: This post was updated in October 2020.]
Many investors like to keep at least a small part of their portfolio in cash. If you want to keep this cash in your online brokerage account (alongside your ETFs and other investments) the most convenient way to do this is with an investment savings account (ISA).
ISAs are also called high-interest savings accounts (HISAs), although these days the rates are anything but high. These products have all but replaced money market funds as the safest way to hold cash in a brokerage account. Although they’re not mutual funds, ISAs have a FundServ code, which means they can be bought and sold the same way.
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.
Many bank-owned brokerages offer only their own proprietary ISAs to clients. For example:
- 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.
- ADS Canadian Bank Tiered Investment Savings Account (DYN5000) is available to clients of Scotia iTRADE.
- NBI Altamira High-Interest CashPerformer (NBC100) is affiliated with National Bank of Canada.
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 $9.95, this isn’t bad at all. I think some people are getting scared off because it is listed under “Mutual Funds” and figure there must be a MER buried somewhere in there but HISA’s have no MER. I am new to Questrade but just recently used their online chat help a couple times and they have been very helpful. I’d stick with Questrade and if you ask specific questions, the online chat help is great.
Thanks for the tip. This is exactly what I was looking for FYI the RBC Mutual Fund code is RBC2010
i learned today that you CANT buy these funds anymore if you use td waterhouse, you have to use their own money markey mutual funds…
i was told (by a president account rep, no lrss) that “since td waterhouse now offer similar products, there no reason for our clients to use funds from other companies”. This limitation was put in effect june 2012 it seem.
i suggest everyone complain to their head office
@Dong: Is the TD alternative offering the same interest rate (typically 1.25% today)? If so, then there’s really no issue, since the products are identical. My brokerage is iTrade and they only allow you to use the Dundee fund, which is fine. But if the TD fund is offering a lower rate than the others, then that’s really bad customer service.
Yes I tried and it seems at TDW you can no longer buy any competing ISA funds. The TD fund is TDB8150 yields 1.25%, which is inline with most of the other ISA brokerage products. But but I typically buy Manulife Trust ISA (MIP710) which currently yields 1.3% and now that is no longer an option. 5 bps is not a deal breaker but disappointing and perhaps worth complaining about. Plus if you need to park more than 100K then this exceeds the limits of CDIC does it not? That is you no longer have the option of parking in multiple ISA funds to retain CDIC.
RE:CDIC limits, they have 4 different CAD$ funds, each offered by a different entity within the group and each with 100k insurance. http://www.tdam.com/Content/Products/p_LandingPage.asp?PID=27
That is good that TDW has CDIC coverage to the extent of $400k with the 4 products. But still a net negative for the customer especially if the day comes that these ISA products offer varying and higher rates. I would be interested to know how these products work and speculate that if the customer earns 1.25% then their brokerage may earn 0.25% trailer fee, for example. So if the product is strictly in-house at TD then you would think they could offer a superior rate…
Is there a fee to put money in the HISA from TD? Thanks.
@Chris: There should never be a fee to transact fees HISAs, but you should call your brokerage just to make sure.
I have my accounts at TD brokerage and I’ve never been charged any transaction fees / commissions.
hi, how do i report interest income from these high-interest savings account to CRA? same as any other savings account i.e. manually add all interest received in 2015? i dont think i got a T5 for this account from TD Direct Investing. thanks.
@calgary: You should receive a T5. It’s still early: should come in March.
As mentioned above, these ISA products have a FundServ code, which means they can be bought and sold just like mutual funds. Perhaps this is why TD is reporting the sale of high interest savings in the T5008, which is normally reserved for traditional securities like mutual funds and stocks. Does this mean we have to report the redemption of ISAs on the T1 Schedule 3 for capital gains and losses, even when the proceeds and cost of these accounts are the same, so there is no gain or loss? ISAs are supposed to be savings accounts, and we receive a T5 for the interest earned, so why should they be reported on the Schedule 3? Thanks.
@Dee: If the brokerage reports a capital gain or loss on an ISA, it’s in an error (though I have seen it!). Only interest income should be reported via a T5.
New to all this, so appreciate any feedback
So would an investment savings account be a part of my TFSA, or RRSP? or would it be seperate all together.
all the money in my TFSA/RRSP are invested, and was looking for a place to stash some cash/emergency funds? can I just setup a separate investment savings account??
thnks
@VarD: If you just want to set up an emergency fund, a simple bank account would likely be best. The rates are higher anyway. The idea behind these products is that they’re useful if you want to hold cash inside a brokerage account along with your investments.
thanks for the reply
but for example, the ‘high interest savings’ account at RBC is 0.55%, tangerine is 0.8% i believe, while these investment savings accounts have rates of 1% and in some cases, marginally higher.
would it not be better to store those emergency funds in accounts with higher rates?
thnx
Regarding your Apr 11, 2016 comment above:
@Dee: If the brokerage reports a capital gain or loss on an ISA, it’s in an error (though I have seen it!). Only interest income should be reported via a T5.
Why are ISAs not T5008 reportable? Is it because they are not “securities” under the Income tax Act? Or another reason?
@Sean: It’s simply because a savings account cannot have a capital gain or loss. It cannot go down in value, and any increase in the account’s value can only come from interest.
@CCP and @Sean
Re: How does one declare interest income from an ISA?
So ISAs are not T5008 reportable, but I did earn interest income (around 0.75%) on my ISA, so how do I calculate and declare that income. My broker (self-directed non-registered account) just sent me a list of my ISA buy and sell transactions, but no total of the interest earned.
Do I have to go back and add up each month’s distributions?
Please tell me there’s an easier way.
@SlightlyThick: You should receive a T5 slip from the ISA which declares the amount of interest paid during the year.
@CCP
Thank you. I received a T5 for this account, but only dividend income is listed on it. Should ISA interest income be listed on the T5 even if that interest income is automatically reinvested in new fund units?
@SlightlyThick: ISAs do not pay dividends, they pay interest, so there is some confusion here. In any case, reinvested interest (or dividends) are still fully taxable in the year they are received.
@CCP and @Sean
After looking more closely at the tax docs from my broker, I see that it did report my ISA transactions on a T5008. This is not consistent with what Sean says above about ISAs being non-T5008 reportable. Puzzling.
@CCP
Have finally cleared up the confusion. Thank you for your replies and patience.
The way I understand it is that my broker logs transactions, including mutual fund and ISA transations, and lists them ALL on a T5008, even though the ISA transactions are not relevant, since there can be no capital gain or loss. When I downloaded the T5008 from my broker’s website, I did not realize this.
Another arm of the bank, the one that actually manages the ISA, sends out its own separate slips (T5s, in this case), which I have not yet received. Today, I was able to obtain from my broker the totals that appear on the T5 for my ISA and they are sending me a duplicate copy of the T5.
I apologize, CCP, for having wasted your time, though perhaps this will help other people who are struggling with the same issue.
Thank you.
@SlightlyThick: No worries, this is all more confusing than it needs to be!
Hi, I as well have the TDB 8150 ISA and I have never receive a T-5 with the interest in any of the numerous years I have owned them. My accountant keeps asking me to rationalize the transactions from the T5008 each year. I tell him they are not mutual funds per say and just a deposit/interest savings account vehicle. Regardless I make very little interest on them ( less than 50.00) per year. Is this why I never get a T-5 ? Anyway I am mystified at how to report these properly to the CRA ? Thx BC
@Bruce: Generally no T-slips are issued for interest payments under $50 annually, but you are still responsible for reporting these amounts on your tax return:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-121-interest-other-investment-income.html
If you sell units of a high-interest savings account, your brokerage will generally report this on the T5008, because this form lists all proceeds from the disposition of securities. If your accountant sees “TDB1850 ISA” etc. on the report, he may not know what this refers to, so he’s right to follow up. But as you noted, there will never be any capital gains or losses resulting from the sale of a high-interest savings account, so you don’t have to worry about reporting this.
Thx , I always add them up and report them regardless of the amount. I have another question on tax loss selling…. Can I use cap. losses from Canadian equities to reduce cap. gains on a US security ? Thx Bruce
@Bruce: Yes, you can offset any capital gain with any loss, regardless of asset class. You can even offset a gain on, say, a rental property with losses from your stock portfolio.
Thx again. Great Site !!
I also think ISA sales don’t need to be reported on Schedule 3, even when they show up on T5008. However, will that raise red flags with CRA when they use their logarithms to match between T5008 and Schedule 3 transactions?
So, is this something for the broker to correct?
@Mew: If there is no capital gain, then there is no need to report it to CRA, even if it appears on the T5008. If CRA comes back to you to ask about it, it would be simple matter to explain. Brokerages are required to report all dispositions, so they’re not doing anything incorrectly.
Thanks for the reply.
If the HISA is in US dollars, is it treated as “deposits” and exempt from FX capital gains/losses due to currency fluctuations? HISA through brokerage has a “fund code”.
I know regular US dollar denominated mutual funds or money market funds are not treated as deposits and FX capital gains/losses reporting is required.
This post says that ISAs don’t have any MER, but a TD rep told me today that they do (in the form of trailing commissions, which were also reported to me in a “fees and charges” report.
The rep said that the interest rate advertised is still what you get (no commission or MER is subtracted from it), but the broker is making some money from it.
Hopefully somebody can clarify whether this sounds correct or not.