The hottest-selling ETF last month was – get this – a vehicle for parking money in savings accounts.
So was the fourth bestselling exchange-traded fund of October. Both stocks and bonds are having a knockout year, but investors are pouring money into ETFs that combine safety with returns that at least keep them even with inflation.
Investors are obviously in a mood to keep some of their money in cash, and the investment industry has capitalized with products to meet this demand. What’s missing is a way for investors to tell which products each online brokerage firm offers to clients who want to park cash.
The Globe and Mail DIY Investing Guide to Parking Cash fills that need by offering a broker-by-broker look at two types of cash investments – high-interest savings ETFs and high-interest saving accounts packaged as mutual funds. As you’ll see in the accompanying chart, there’s a lot of variation in who offers what.
For example, BMO InvestorLine, RBC Direct Investing and TD Direct Investing do not offer clients access to the CI First Asset High Interest Savings ETF (CSAV), which led the sales charts last month with $410-million in net inflows, or the Purpose High Interest Savings ETF (PSA), which ranked fourth in sales with inflows of $208-million.
CSAV holds savings deposits at big banks, while PSA’s holdings are deposits at banks and at credit unions. The yield after fees for both is in the 2-per-cent range after management-expense ratios in the range of 0.15 per cent.
Brokerage commissions incurred in the trading of CSAV and PSA units will cut into the returns from high-interest savings ETFs. But you would still likely come out ahead of other cash vehicles if you have a large amount of cash to park.
A good alternative to CSAV and PSA is a high-interest savings account that trades like a mutual fund. These products are really helpful in that they offer a reasonable yield, no fees to buy or sell in most cases, and the ability to integrate these products right into your investment account. Yet many brokers do a weak job of showing clients which high-interest accounts they offer.
It can also be a hassle to find the right Fundserv code for the fund when placing an order for a high-interest account with an online broker (Fundserv is the electronic network for processing mutual fund trades). Our guide to parking cash includes these codes.
Canadian-dollar high-interest savings accounts typically benefit from deposit insurance through Canada Deposit Insurance Corp., which means holdings in eligible accounts would be protected up to $100,000 in combined principal and interest. If you have a larger deposit, you could use two different high-interest accounts. Also, some issuers offer multiple versions of their high-interest accounts, each with separate deposit insurance coverage. High-interest savings ETFs are not CDIC-protected.
The yield on the mutual fund version of high-interest savings accounts in early November was 1.6 per cent in most cases. U.S.-dollar versions of these funds typically pay less – about 1.2 per cent at best. The yield for these funds is squeezed a bit by a trailing commission of 0.25 of a percentage point that is paid by the issuing fund company to brokers selling the product.
As noted in the chart, Questrade and Virtual Brokers offer Series F versions of some high-interest savings mutual funds. Trailers are eliminated in these funds, which means the yield should rise by 0.25 of a point.
One of the main differences between high-interest savings account mutual funds is the minimum balance required. The B2B Bank High Interest Investment Account advertises no minimum balance, while the Renaissance High Interest Investment Account sets a $50 initial minimum. Expect other products to have minimums of $500 or $1,000.
If trading commissions deter you from using a high-interest savings ETF, check out a mutual-fund version of CSAV called the CI High Interest Savings Fund. The management-expense ratio is higher than CSAV, but the after-fee yield, at 1.9 per cent in early November, was still ahead of the typical competing investment savings account mutual fund.
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Rob Carrick