I have an DIY investing confession. A few years ago around 2013, when I had cash to invest, I left it lying around in my Questrade account for probably over a year. It was around $100,000. I think I was dollar cost averaging but not in huge amounts, and I was waiting for an opportune time to invest it. Eventually I just bit the bullet and invested most of it in larger chunks, but it took me a long time to take the action to do that. Too bad I didn’t have access to high interest savings ETFs at that time.
I did park some cash in high interest savings accounts (used the TD one) but I was annoyed at having to pay a $9.99 fee each time I moved money in and moved money out. It was painful to do when I’m supposed to be earning meagre interest on my cash!
It earned 0% interest for probably years. I didn’t want to put it in a high interest savings account because I didn’t want to wait so long for it to transfer from my high interest savings account to my discount brokerage.
In 2020, I had another cash surplus. At that time, I did it a bit differently, and I had been put some money into my investment portfolio to trade but the bulk of it was in high interest savings accounts spread among Motive Financial, EQ Bank, Canadian Tire, and LBC Digital Bank (LBC Digital I would not recommend). I put in a portion at a time into my investment account.
Here is where you can park your cash while you wait for an opportune investment (or a time when you feel safer to invest) and when you’re attempting to ‘time the market’ or when you’re slowly dollar cost averaging.
Table of Contents
Where to Stash Your Cash in the Investment Portfolio
There are different options of what you can do with the short term cash in your investment portfolio to earn some interest. As mentioned, you can purchase a high interest savings ETF.
High Interest Investment Savings Account
You could also purchase a high interest savings account or investment savings account within your brokerage. They are bought and sold like mutual funds (it is usually free if you have a TD Waterhouse account and you add the TD Investment Savings Account for example).
They do have a minimum to invest (for example, TD Direct Investing is is $1000) and they are covered by Canadian Deposit Insurance Corporation by up to $100,000. The interest is calculated daily and paid monthly. The settlement period of these funds is the transaction day plus one day, so it’s pretty quick.
For most brokerages, this would not be an additional cost.
Unfortunately, for Questrade though, if I were to put cash into a high interest savings account within the brokerage, I would have to pay Questrade a fee of $9.95 to buy and $9.95 to sell because it is considered a mutual fund.
Here are some investment savings accounts available and their rates (as of June 2022):
- TD Investment Savings Account TDB8150 (1.25%)
- RBC Investment Savings Account Series A RBF2010 (1.25%)
- BMO Investorline Investment Savings Account AAT770 (AAT770 Current interest rate is not available at present time)
The brokerages above consider these to be deposits and not mutual funds, but Questrade views them as a mutual fund and hence charges a $9.95 fee.
Another benefit for high interest investment savings is that you can have either USD or CAD funds with these (they have separate Fundserv codes).
Money Market Fund
Another option to park your cash while investing is a money market fund.
A money market fun is very liquid.
It is a mutual fund that invests in short-term debt securities, short-term notes issued by governments and corporations. Money market funds also have fees associated with them. These used to be very popular, but the interest rates are not as good as things like high interest savings accounts. Even though the interest rates are paltry, according to the IFIC, the Investment Funds Institute of Canada, Canadians had $27.5 billion sitting in money market funds in 2018.
What are the fees associated with money market funds? For example, the RBC Canadian Money Market Fund Series A has a MER (management expense ratio) of 0.19% and the return in 2021 was 0.10%.
Another example, the TD Canadian Money Market Investor Fund has an MER of 0.19% and assets under management of $1.6 billion. The 1 year return is 0.21%.
This post may contain affiliate links. Please see genymoney.ca’s disclaimer for more information.
Money market funds are not without risk.
The money invested in a money market fund are not covered by the Canadian Deposit Insurance Corporation (CDIC).
They are covered by CPIF (Canadian Investor Protection Fund) up to $1 million if your brokerage is a member of the CPIF.
Basically money market funds should not be where you stash your investing cash because of the low rewards and eroding returns. And yet Canadians are parking their cash in money market funds.
Questrade money market funds might not be worth it and your money will be better off elsewhere.
Finally for higher interest rate and middle ground with similar liquidity, there are high interest savings ETFs in Canada.
High Interest Savings ETF Canada
High Interest Savings ETFs (or HISA ETFs) are similar to high interest investing accounts, but they are not a mutual fund they are an exchange traded fund.
An exchange traded fund is similar to a mutual fund except that it is traded on the market when the markets are open.
With Questrade, there are no commissions charged when you purchase an ETF, only commission charged when you sell an ETF.
Therefore, buying a high interest savings ETF would be more economical than buying a high interest investment savings account if you use Questrade for your brokerage.
The best ETF to park cash in Canada should be one with a higher rate and low fees.
Here are a few High Interest Savings ETFs in Canada:
- iShares Premium Money Market ETF– CMR ETF has a 1 year return of 0.21%. As of June 25, 2022, it has assets under management of $305 million CAD. The MER is 0.25%. The ticker symbol is CMR.
- Purpose High Interest Savings ETF has $2 billion assets under management. The MER is 0.15%. The 1 year return was 0.80%. The ticker is PSA. The Purpose High Interest Savings ETF also has a US dollar version, and that ticker symbol is PSU.TO.
- CI High Interest Savings ETF has $2.61 billion assets under management and an MER of 0.14%. The inception date was June of 2019. The 1 year return is 0.70%. The ticker is CSAV.
- Evolve High Interest Savings Account Fund has almost $850 million assets under management. The 1 year return is 0.80% but the gross yield is 1.45% and they reduced their management fee to only 0.05% until December 31, 2022. The ticker is HISA and it is traded on the NEO exchange.
What’s the best high interest savings ETF in Canada? Well you can decide, there are a number to choose from, here are a few other ones mentioned by Globe and Mail.
What are the Risks and Benefits of High Interest Savings ETFs?
Interestingly enough, in this Investment Executive article, it says that some of the bigger banks or brokerages have blocked trades for the above high interest savings ETFs. I suppose to steer their customers towards their own products, the high interest savings investment funds.
Another benefit of the high interest savings ETFs is that they have a higher interest rate and much lower MERs compared to money market funds.
One downside to the high interest savings ETFs is that they are not as liquid as an investment fund. The high interest savings ETF trades like an ETF and security, and can take up to three days to settle. In comparison, the high interest savings investment fund takes one day to settle.
High Interest Savings ETFs are more liquid than high interest savings accounts though (I’m not talking about the one within the brokerage account). With a high interest savings account, you have to move your money with something similar to a ‘bill payment’ or ‘transfer’ and it can take anywhere from 2 to 5 business days for the money to transfer.
Related: Tangerine Investment Funds Review
High Interest Savings ETFs Summary
In summary, I think that if you have a brokerage like Questrade that charges for mutual fund transactions (e.g. Questrade high interest savings accounts and investment funds) you may be better off using a high interest savings ETF instead. There zero dollar purchasing ETF commission costs with Questrade (only when you sell, and even then it is $4.95).
Alternately, with Questrade you could also have your money in a high interest savings account earning higher interest and being CDIC protected, and just move small portions over to your investment brokerage at a time.
If you are with a big bank brokerage and you have access to free high interest savings investment account purchases, you’re better with that to keep your short term portfolio money in there (though it is only ‘earning’ 0.25%) but for longer term cash positions and holdings, I would probably stick to a high interest savings account and move money over when I am ready to invest the cash.
Since I am with Questrade, I’m going to stick with using high interest savings accounts and transferring money over when I need it.
After all, I’m no day trader or anything.
If I have some time to wait before I invest my cash that might help me relax a little when investing my money. I will keep a bit of money to invest in the account anyway which will be enough to invest without going overboard.
Questrade users get Passiv Elite for free. Passiv helps you automate the rebalancing aspect so you know where to deploy your cash next.
I thought about buying a high interest savings ETF with the cash I have in my investment account, but decided against it since I have some limit orders that are on standby and I don’t want there to be not enough money available for the trade if it is all tied up in the high interest savings ETF.
If you invest using Qtrade as your brokerage, you can also buy GIC’s through Qtrade. Qtrade account holders can instantly open an account and shop for GICs from a variety of third party providers in their Qtrade platform. Investing in a GIC can be completed in a few clicks.
You may also be interested in:
- High interest savings joint bank accounts in Canada
- HISA vs GIC
- Why Cash Flow is More Important than Net Worth
- Canadian New Bank Account Promotions
- Qtrade vs Questrade review
What do you do with your short term cash in your investment portfolio?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.