[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.
@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.
As the funds listed in this article are typically traded as “mutual funds” within self-directed investment accounts. Would the CIPF coverage of $1M offered on investment accounts apply vs the CDIC of $100K?
@Chris: These savings products are covered by CDIC insurance. The CIPF coverage applies to brokerages and investment firms, not products.
“@Chris: These savings products are covered by CDIC insurance. The CIPF coverage applies to brokerages and investment firms, not products.”
@Canadian Couch Potato: Thanks for the quick reply and love your site.
Sorry I guess I am getting them confused.
If CDIC coverage applies to the product, would that mean if product ATL5000 (for example) became insolvent, 100K coverage would be applicable?
Alternatively, holding $250K of Mutual Fund ATL5000 (for example) in a self-directed investment account that’s $1M insured through CIPF, would that not be covered were the investment firm (CIBC) to become insolvent?
Thanks again and appreciate the clarification.
@Chris: A couple of clarifications. First, mutual funds are not insured by CDIC nor CIPF. High-interest savings products like the ones described here are not mutual funds: they are deposit accounts. They just trade in a similar way to mutual funds.
CIPF does not protect you against losses suffered in your holdings: it only protects you from the insolvency of the brokerage itself. So, no, you would not be covered if you held $250K in ATL5000 in a brokerage account and CIBC was unable to pay. You would be covered only up the CDIC limit.
If a brokerage firm were to become insolvent, any third-patry holdings in your account (such as stocks, ETFs, mutual funds or high-interest savings accounts) would generally not be affected: those assets would not just disappear, because the insolvent brokerage did not own them, you did. In this case, the normal course of action would be for your account to be tied up for some period of time as the insolvency was sorted out, and then eventually another firm would take over the administration of the assets. If any losses were suffered that were the responsibility of the brokerage, then CIPF would make you whole.
More details here:
http://www.cdic.ca/en/about-di/what-we-cover/Pages/default.aspx
http://cipf.ca/Public/CIPFCoverage/WhatDoesCIPFCover.aspx
I have TDDI non registered account with the TD e-Series portfolio. I’m looking to park cash there to get some interest. TDB8150 looks like the correct parking fund to buy. How do I purchase e-Series funds from the parked cash in TDB8150 when I’m ready? Do I sell TDB8150, wait for it return as cash, and then purchase new e-series funds? Or are there other recommended ways? Thanks.
@Dennis: You would need to sell TDB8150, wait for settlement (next day) and then place an order for the e-Series fund. I don’t think TDDI will allow you to place a “switch” order, as this is usually only possible with mutual funds and technically TDB8105 is not a mutual fund, it is a savings product.
It takes a full trading day to settle TDB8150. Just happened to me. Was trying to cash out $20k, placed the order at 4pm EST on February 26th, on Feb 27th the order still shows as “open”, finally the cash is in the account on Feb 28th. make sure you plan early.
@Elisa: The markets close at 4 pm EST, and sometimes mutual fund orders need to be placed before 3 pm or they are executed on the next business day. Had you placed your order earlier in the day the cash should have been available the next day (T+1 settlement).
Could someone advise me how income from these ISA-TDB accounts are reported on one’s Income Tax? Report as regular interest taxable at full rate?
@Bema: It’s fully taxable as interest income. You should have received a T5 slip if you held this fund in a non-registered account.
Is there a reason why you recommend TDB8150 instead of TDB8151 (the F-Series)? I see it is available at Questrade.
@Phillip: Most discount brokerages will not allow you to buy F-Series funds, which are designed for fee-based advisors. If Questrade allow you to buy TDB8151, then by all means use that instead. But also remember that Questrade charges commissions to buy and sell mutual funds and HISAs, which no other brokerage does (at least not to my knowledge).
https://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/be-wary-of-unmentioned-fees-in-ads-for-f-series-funds/article30207579/
Can you have a capital gain/loss in the HISA if it is a USD one, due to changes in the USD/CAD exchange rate?
@Nicholas: Yes, absolutely. All gains and losses are reported in CAD, so if you buy a USD HISA and the US dollar rises in value versus the CAD, there would be a gain when you sell it.
How would these funds compare to something like PSA.TO?
@Rob: I think investment savings accounts are superior in every way. With PSA, there is a management fee, a bid-ask spread, T+2 settlement (instead of T+1) and commissions to buy and/or sell. The CDIC protection is also unclear with PSA: the underlying savings products will be owned by the fund, not by you directly, so I don’t see how you would be protected in the event that one of them failed.
The only possible use I can see for something like PSA is if you needed to hold cash and you had no choice but to use an exchange-traded product. And that would be extremely rare.
If these have no MER/Commissions + you can withdraw the money at any time, then why does TD offer them in 5 different flavours (non F-series)? 4 of them have the same interest rate and 1 is lower than the rest.
https://www.td.com/ca/en/asset-management/additional-solutions/
@Anand: These funds are subject to CDIC limits of $100K. So if you’re sitting on a lot of cash, you may want to use more than one of them. Both TD and RBC offer several versions that are backed by the bank, the trust company, the mortgage corp, etc., all of which are treated as separate entities when it comes to CDIC limits.
Wow, thanks for the quick answer CCP! You are no couch potato :) Makes perfect sense.
@Canadian Couch Potato @ Elisa – Re: “You would need to sell TDB8150, wait for settlement (next day) and then place an order for the e-Series fund. I don’t think TDDI will allow you to place a “switch” order, as this is usually only possible with mutual funds and technically TDB8105 is not a mutual fund, it is a savings product.”
I was recently called by TD Direct Investing and they advised me that using the ISA could be advantageous without the time penalty one would pay if an opportunity were to come up. This “flexibility” or liquidity being touted was supposedly because the TD ISA settles in 1 day and other securities (MF, ETF, Stocks) settles in 2 days. As such, I was advised I could put my money into an ISA and if something were to come up, I could sell the ISA and buy the security in the same day. Seems reasonable but Elisa’s account makes me concerned.
Anyone have any experience with this?
I have my RRSP and RESPs set up as TD e-series accounts. I have money parked in the money market accounts within each. But I would like to park that cash portion in the TDB8150. It doesn’t look like I can with the current setup? Would I need to have a separate RRSP and RESP account that could hold TDB8150, and transfer the cash portion from the e-series to the regular trading account?
@TGod: If you have a TD Mutual Funds account (as opposed to using TD Direct Investing), then you can only use the TD money market fund. Admittedly, TDB8150 is a much better product, but I’m not sure it is worth opening new accounts and transferring institutions for this reason alone, unless you are holding large amounts of cash in these accounts.
https://www.td.com/ca/en/asset-management/additional-solutions/
Can you please explain the difference between these funds and if there are different fees with an F series fund? I am looking to purchase one using TD Direct investing in an RESP as my child gets closer to university age – thank you.
@SW: TD has created different versions of its savings products so large investors can stay within the limits of CDIC (deposit insurance), which is $100,000. TD Bank, TD Mortgage Corporation (TDMAC), TD Pacific Mortgage Corporation (TDPMC), and Canada Trust Company (CTC) are all separate companies, so an investor could safely put $100,000 in each version. (I realize this is not a problem for most people!) So you can pick any one and they are all equally safe.
You should be aware that you cannot purchase F-Series funds through online brokerages: these are only available to fee-based advisors. DIY investors will need to use the A-Series versions.
Thanks so much for your thorough and quick response!
Hi Dan, I’m wondering what your thoughts are on ETF HISA funds such as PSA.TO. How do they compare with just parking cash in the institutional HISAs that you’ve described above? Appreciate your time.
@Younginvestor: In my view, there is no value in using an ETF for this purpose: HISAs are more liquid (one day to settle, compared with two for an ETF) and carry no transaction costs or management fees. They also have CDIC protection, which an ETF does not. There is even the possibility of small losses if you hold this ETF for short periods.
Hi Dan,
Thank you for the very valuable guidance! I’ve learned so much from you these past few weeks.
Wanted to ask what your opinion is with using HISAs from online banks (as opposed to ISAs from big banks) such as the ones listed here: https://www.highinterestsavings.ca/chart/
Seems like they have higher interest rates and are just as liquid – if not more. Is there a catch?
P. S. If this was already addressed in a previous comment (or post) I apologize. Just point me in that direction – I want to respect your time. (I did try looking through some comments but didn’t see it covered.)
@Oswin: As long as you stay within CDIC limits ($100K) there should be no issues with using HISAs from online banks. These can indeed pay significantly higher rates than the big banks and are a good option for holding cash. The advantage of ISAs is that you can hold them in a brokerage account along with other securities.
Thank you for the great site.
Does an in-kind transfer of USD HISA (say TDB8152) from USD Cash Account (non-registered) to CAD or USD side of an RRSP or TFSA account trigger capital loss/gains for tax purposes? Or can we treat this as a cash transfer with no FX conversion taking place (due to in-kind transfer) and hence assume that it doesn’t trigger such a tax? I am confused.
@Matt: An in-kind transfer to a registered account has the same tax implications as if you had sold the security. So, yes, technically an in-kind contribution of a USD HISA could result in a capital gain or loss, depending on the FX rate.
Can you get an ISA through Questrade? Or do you have to be with a bank brokerage?
@Kim: It would be best to call Questrade directly to ask about options. Unlike most brokerages, Questrade charges a commission for buying and selling mutual funds, which may also include these HISA products.
My RBCDS broker suggested I leave some untargeted money in an RBC ISA for future quick investment decisions as required, which seemed like a good idea as the interest rate was better than in the savings accounts of any other bank. However, I came to realize that all my dividends were being paid into this account, which showed up on my monthly statements as “Mutual Funds”. I then began to notice I was getting covering letters thanking me for choosing mutual funds (which I never did!), so I was puzzled. As time has gone on I’ve become even more puzzled. The small print in the accompanying policy document for the ISA says that there “may be a penalty for early withdrawal” and also that the account is being held by “the Dealer” (= my financial adviser) on my behalf. Decisions regarding the account are to be taken by the so-called Dealer rather than by me. I’m currently getting an interest rate of 0.20% and wonder if my adviser is in fact getting a hidden advantage from this account. I’ve asked her several times to explain the puzzling “mutual funds” entry on my monthly statements, but I never get any kind of clear answer. Can you help here, please?
@Nils: Without knowing the details I can’t offer too much more explanation. But in general:
– Although an ISA is technically not a mutual fund (it is a deposit account, covered by CDIC insurance like a bank account), these products are bought and sold on the same platform as mutual funds, so you may be receiving boilerplate disclosure documents, like you would if you bought mutual funds. And the interest payments might be showing up on the statements as distributions from mutual funds, even if this is not technically accurate.
– There is almost never an early withdrawal penalty for an ISA (though these are common in mutual funds).
– If you buy an ISA through a commission-based advisor, you’ll get the “Series A” version, which pays a trailing commission to the advisor. If you purchase this fund through a fee-based advisor (who does not accept commissions) you would get the “Series F” version, which does not include this commission. For example, at RBC right now, the Series A version (RBF2010) pays 0.20% and the Series F (RBF2011) pays 0.35%. Presumably you have the Series A version.
https://www.rbcroyalbank.com/products/isa/index.html
I am just learning about using these investment savings accounts for brokerage cash. I am currently with TD Direct Investing, and when i use the purchase mutual fund tab and search Dyn400, is shows up as “ADSB Investment Savings Account” USD with a yield of .95%. This is much higher than the TDB8152. I can’t find any information on DYN400, would this still trade with no fee or commission? Would there be any issues buying this vs TDB8152? Thanks
@Marvee: Most bank brokerages do not allow you purchase investment savings products from other banks. My guess is that if you are at TD Direct you will not be able to purchase DYN400.
Hi Dan,
I see your comments above regarding PSA.TO however I wonder if Questrade users are better off going for High Interest Savings ETFs rather than HISAs / ISAs, specifically because of the commissions. With the former, purchases are free and sales are between $5 and $10. With the latter, each is $10. What do you think? Any other important aspects to consider that I’m missing here?
Here’s an article I came across with this specific use case: https://www.genymoney.ca/high-interest-savings-etfs-in-canada-park-your-cash/
Thanks,
Oswin
@Oswin: I think these ETFs are a reasonable option if the alternative is paying commissions to buy and sell ISAs. Just remember that you would not benefit from CDIC protection, though this is an admittedly small risk. There may also be some cost from the bid-ask spread and the risk of small price declines in the short term.
Hi Dan,
I’m guessing that these ISAs are used by the issuing institution to invest or lend at higher rates.
1- What are the risks of default or loss that would result in the institution not being able to pay you (the owner of the ISA) back?
2- Is CDIC “robust” enough to cover all these issues in the (unlikely) case that an institution (bank) has to default on all of its ISAs?
@Yva: It’s impossible to assess this risk with any precision. I think it’s fair to say that the chances of one of the Big Five banks defaulting on an ISA is vanishingly small. The chances of a smaller bank or mortgage lender doing so is clearly higher, and I would always suggest staying within the CDIC limits with these smaller issuers. If the CDIC cannot meet its obligations, then that probably means the federal government has failed, in which case we would all be in trouble.
Thanks for the prompt response, Dan.
I understand that what I’m asking about is a pretty dire situation. I wanted to confirm that GIC’s would be in the same boat if the federal government cannot meet its obligations, as they too are insured by CDIC?
BTW, I have been an early adopter of the initial Couch Potato and I really appreciate the information that you provided then and continue to update today.
Twice, when I was -briefly- lured to actively managed portfolios, I was quite disappointed and encountered losses… Another “case study” supporting passive investing over active management…
@Yva: Yes, GICs are covered by the same CDIC protection as savings accounts, subject to the same limits.
Thanks for the kind words, and very glad to hear the blog has been helpful!
So TDB8150 is for a Canadian account .. is there one for a US account with TD?
@Vijay: TDB8152 is the USD version.
https://www.td.com/ca/en/asset-management/additional-solutions/
Would the TD cashable GIC (TDBK 1Y CASHBL REG) no be preferred to the TDB8150 savings account – 2% v 1.25%. Or does GIC have fees that I am not aware of? I understand that you need to keep funds for a minimum of 30 days to not be penalized.