Your Complete Guide to Index Investing with Dan Bortolotti

Parking Cash in Your Portfolio

2018-06-17T20:19:35+00:00October 12th, 2010|Categories: Asset Classes, ETFs and Funds|Tags: , |106 Comments

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:

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.

 

106 Comments

  1. Bruce Carter December 7, 2017 at 10:55 am

    Thx again. Great Site !!

  2. Mew March 10, 2018 at 7:39 pm

    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?

  3. Canadian Couch Potato March 11, 2018 at 10:50 am

    @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.

  4. Mew March 23, 2018 at 10:06 am

    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.

  5. John Wilks August 13, 2018 at 11:32 am

    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.

  6. Canadian Couch Potato August 13, 2018 at 11:55 am

    @John: This is true: it’s mostly a question of semantics. The commission paid to the dealer with these products is not a “management fee” but it is a cost nonetheless. GICs do not have a management fee either, but they have embedded commissions that get paid to the dealer who sells them. All financial products make money for the financial institution that creates them, and that’s fair enough. In this case, as you allude to, the advertised interest rate is net of any fees or commissions, so it’s transparent and straightforward.

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