We have a problem in Canada with investor paralysis.
Scary stock markets have caused people to store what some analysts consider to be excessive amounts of their wealth in cash rather than in stocks and bonds. The concern is that while cash is safe, it's not going to generate the returns people need to meet their financial goals. Investors with a long-term outlook should be edging into the market when it falls, but it's clear that some people simply can't follow this plan. That puts them in a position of having to maximize returns from their cash.
In an account held with a broker or investment firm, the best way to do this is through an investment savings account. Sold like mutual funds, these accounts typically offer the safety of deposit insurance and higher rates than you see on money market funds or Treasury Bills. More and more financial firms are offering these accounts to investors, but you may not realize this if you deal with certain online brokers. They force clients to use their in-house investment savings accounts, which typically have uncompetitive rates. A quick example: The RBC Investment Savings Account pays 0.75 per cent, while the Home Trust High Interest Savings Account pays 1.3 per cent.
As part of my annual ranking of online brokerage firms, I look at whether clients have a choice of investment savings accounts available to them. If you're suffering from investor paralysis and planning to stay in cash, this information may help you squeeze a little bit more out of your money.