HISA ETFs Are Paying More Than 4.5 percent

The High Interest Savings Account ETFs product category took off in 2022, as investors are looking for places to park their cash without the lock-up commitment of GICs

Investors looking for one of the best savings interest rate on their cash should consider High Interest Savings Account (HISA) ETFs.

National Bank highlighted that in October $1.1 billion moved into the Cash ETF category, following $1.7 billion in September. The category has doubled over the last year, bringing the assets under management (AUM) to $12 billion. Although HISA ETFs are relatively new in the Canadian marketplace, money market ETFs have always been a place for conservative investors to park their money, while looking to gain extra interest while maintaining liquidity. Unlike GICs that require a rigid and specified term to gain interest on cash you have sitting around, HISA ETFs are liquid and provide compelling yields without a long time commitment. The low risk rating, combined with an elevated interest rate compared to bank deposits make it an attractive product.

What is a High Interest Savings Account ETF and how do they work?

The HISA ETF deposits their assets into deposit accounts at the banks. Generally, they are deposited at some of the immediately recognizable top Canadian banks. The banks offer a competitive rate of interest on the deposits that are similar to rates on traditional high interest savings accounts. The rate is a dynamic variable rate and will likely move as the Bank of Canada hikes and cuts interest rates. HISA ETFs typically have expected distributions that occur monthly. The HISA ETF can be bought and sold like any other ETF and can be purchased directly by investors through discount brokerage accounts.

The main benefits of HISA ETFs are:

  • An increased rate of return relative or better than many other cash or cash equivalent products. 
  • Relatively low risk, and you are more than likely to get all of your capital back and then some. 
  • An Inflation hedge relative to cash.
  • Relatively liquid and doesn’t lock-up your cash, investors can withdraw money at any time and move it elsewhere. Well technically T+1 day on withdrawals.

Some Drawbacks include:

  • No CDIC coverage
  • Net-of-fee returns need to be evaluated, because there are fees on these products. The good news is companies are required to disclose their fees.
  • May underperform similar products in various markets.
  • Trading fees
  • Possible mismatch in pricing between the underlying asset and the ETF.
  • Diversification benefits may be limited as a few of the HISA ETFs are depositing the funds into some of the same top-tier Canadian banks.
Purpose High Interest Savings ETF Horizons High Interest Savings ETF CI High Interest Savings ETF Evolve High Interest Savings Account Fund
Yield 5.000 4.950 4.910 4.980
MER 0.170 0.110 0.140 0.150
Net Yield 4.830% 4.840% 4.770% 4.830%
AUM 4.5 billion 2.4 billion 7.0 billion 4.0 billion
Most recent data April 13, 2023 April 13, 2023 April 13, 2023 April 13, 2023

Note: the management fee is currently discounted and expected to increase from 5bps to 15bps in January 2023. This will likely move the MER up from 17bps to 27bps at that time.

Alternatives: GICs and traditional High Interest Savings Accounts (not the ETF form) are alternatives for those that have cash and are looking for yield greater than a traditional savings account. Some of the Canadian Discount Brokerage firms have blocked their clients from purchasing HISA ETFs as it competes with their existing products. It would be great if we lived in a world where decent interest was automatically paid on cash balances.   Shout out to Interactive Brokers pays reasonable interest on cash balances (BM - 50bps) over $13,000. To our understanding this is the only brokerage doing this.

Disclosure: ShopAssist and it's affiliates provide information for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to.