What are we looking for?
How Canadian money market fund returns stack up against high interest savings accounts in the current low interest rate environment.
Money market funds, which are parking spots for cash, invest in short-term investments such as treasury bills, bankers’ acceptances and commercial paper.
We ranked the eight best and eight worst returns among money market funds for the year ended Oct. 31, and compared their gains with high interest accounts. Segregated and duplicate versions of the funds were excluded, as well as those targeted at professional groups and requiring more than a $5,000-minimum investment.
What did we find?
Better – albeit still puny – gains in some high interest savings accounts.
The money market fund returns all came in below 1 per cent. A few even came up empty handed.
Online bank ING Direct, however, has a regular investment savings account that provided a 1.5-per-cent return. Royal Bank of Canada’s RBC investment savings account, which is mainly targeted at financial advisers outside the bank, provided a 1.2-per-cent gain with only a $500-minimum investment.
Money market funds that did provide investors with some return managed to do so by cutting fees.
Manulife Money Fund topped the list with a 0.92-per-cent gain. Its return was helped by reducing its fees back in 2009 to 0.50 per cent. That included suspending the 0.25-per-cent annual trailer commission to financial advisers, said Jeff Ray, an executive with Manulife Asset Management Ltd. “The return goes to the investor.”
Matrix Money Market, which gained 0.85 per cent and Matrix Short-Term Income, up 0.81 per cent, charges an even lower 0.33-per-cent fee. That charge includes a “modest 0.10 per cent trailer fee” to advisers, said David Balsdon, chief operating officer with Matrix Fund Management Inc. “Everyone gets a little bit.”
But Brandes Canadian Money Market, Pro Money Market and imaxx Money Market all provided zero returns.
Brandes Money Market still charges a 1.33-per-cent fee, which includes the 0.25 per cent trailer commission to advisers. “We have maintained the trailer fee at the same level … while we wait out this low-rate environment,” said Matthew Brundage, a vice-president of marketing at Brandes Investment Partners.
With interest rates unlikely to head north soon, investors earning nothing may want to consider alternatives.