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:
Some Drawbacks include:
|Horizons High Interest Savings ETF||CI High Interest Savings ETF||Evolve High Interest Savings Account Fund||Purpose High Interest Savings ETF|
|AUM||1.4 billion||5.3 billion||2.9 billion||3.8 billion|
|Most recent data||Jan. 3, 2023||Jan. 3, 2023||Jan. 3, 2023||Jan. 3, 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.
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