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A Toronto-Dominion Bank bank branch in Ottawa on May 26, 2016.Chris Wattie/Reuters

Some of Canada’s largest banks are blocking online investors from buying high-interest-savings exchange traded funds, which compete with the banks’ own lucrative deposit accounts.

The discount brokerage arms at Royal Bank of Canada, Bank of Montreal and Toronto-Dominion Bank do not allow do-it-yourself investors to purchase high-interest-savings ETFs, also known as cash ETFs, or HISA ETFs. The funds, which are run by independent asset managers, mainly invest in pools of banks’ high-interest savings accounts and deposits.

Investing in high-interest-savings ETFs offers investors liquidity, whereas the equivalent products at banks – savings accounts and guaranteed investment certificates – may have locked-in investment horizons, and can be slow to react to rising interest rates.

Mark Noble, executive vice-president of ETF Strategy at Horizons ETFs Management (Canada) Inc., said the company has never been able to get clear answers about why its HISA ETFs have not been listed to trade on the discount brokerages at some banks.

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“Historically, we have never seen a discount brokerage in Canada choose to not have an ETF listed on their platform,” Mr. Noble said. “Investors can buy an inverse bitcoin fund, a cannabis fund or two-times leveraged funds without any barriers. But then are being told they are not able to purchase a cash ETF. It is as low risk as you can get.”

Dan Hallett, vice-president and principal with HighView Financial Group, said he finds it surprising that do-it-yourself investors aren’t able to buy low-risk cash ETFs at certain discount brokerages, even as “risky, leveraged ETFs have proliferated for more than a decade.”

“Discount brokerages that restrict access are allowing access only to their own proprietary savings accounts, which generally pay a lower interest rate than the net rate available from most cash ETFs,” he said. “In other words, they’re not allowing clients to invest in those cash ETFs so that they can raise more, cheaper deposit capital.”

Currently, there are six cash ETFs in Canada. They are: the Horizons Cash Maximizer ETF (HSAV-T), the Horizons High Interest Savings ETF (CASH-T), the CI High Interest Savings ETF (CSAV-T), the Purpose High Interest Savings ETF (PSA-T), the Evolve High Interest Savings Account Fund (HISA-NEO) and the Ninepoint High Interest Savings Fund ETF Series (NSAV-NE).

Management expense ratios for the category range between 0.05 per cent and 0.39 per cent, and the funds provide gross yield, before fees, of about 1.95 per cent.

Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank of Canada sell the ETFs through their discount brokerages.

RBC spokesperson Kathy Bevan said in an e-mail that decisions about product selection on the bank’s discount trading platform are “carefully considered and reviewed regularly.” Any client who is interested in short-term retail deposits, she said, can access an RBC investment savings account, which is not a bank account but rather a short-term cash account that is available to all RBC Direct Investing customers.

TD spokesperson Derek Kirk confirmed that TD Direct Investing – Canada’s largest discount brokerage – does not allow clients to trade HISA ETFs. Instead, he said, TD directs clients to its TD investment savings accounts, which are CDIC-insured bank accounts.

Bank of Montreal spokesperson Jeff Roman confirmed in an e-mail that the bank does not sell HISA ETFs. For investors interested in savings, he added, the bank “currently offers a CDIC insured high interest savings account” through its advisory and self-directed channels.

With rising interest rates, HISA ETFs have begun to see a bump in assets. In Canada, they have recorded more than $1.6-billion in sales in the first half of the year, according to data provided by National Bank Financial. HISA ETFs had $7.8-billion in total assets under management as of June 30.

In comparison, high-interest savings accounts in Canada had about $541-billion in assets as of December, 2021, according to research provided by Investor Economics, a unit of ISS Market Intelligence. The Big Six banks account for over 75 per cent of that business.

Another $588-billion sits in guaranteed investment certificates, a type of savings product that typically provides locked-in rates for set periods of time. GICs are one of the fastest growing product categories in today’s interest rate environment, according to Carlos Cardone, senior managing director at Investor Economics. Almost half of the balance held in GICs is at the Big Six banks.

Mr. Cardone said that while growth in high-interest savings accounts slowed to about 5 per cent in 2021, as investors chased higher returns in the stock markets, early evidence suggests that more recent market volatility may have resulted in much faster savings-account growth in recent months.

“The product category had been in net redemptions since rates dropped early in the pandemic and is now staging a major comeback,” Mr. Cardone added.

Mr. Hallett said most banks were slow to raise their rates this year on certain savings accounts as interest rates climbed, because of the large captive audience in those products.

“They would have likely responded sooner had they actually been competing with each other and these ETFs,” he said.

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