A new ETF for parking cash, just in case regulators crack down on the reigning champion in this fund category

There are two big reasons to park your money in a high interest savings account ETF – high yields and zero drama.

Now, about that drama thing. A recent Globe and Mail story highlighted a review of HISA exchange-traded funds by the Office of the Superintendent of Financial Institutions, a federal banking regulator. HISA ETFs invest their money in high-yielding deposits at big banks – OSFI wants to understand whether this arrangement poses any liquidity concerns for banks. If OSFI sees any issues, it could order changes that would lower the interest rates retail clients earn from current levels just below 5 per cent.

Already, new ETF alternatives for parking cash are emerging. The Horizons 0-3 Month T-Bill ETF (CBIL-T) targets an initial net yield of 4.23 per cent, while the Horizons 0-3 Month U.S. T-Bill ETF (UBIL.U-T) targets a net yield of 4.25 per cent. Both funds, scheduled to be launched Friday, hold federal government Treasury Bills maturing in 90 days or less. The T-bills in these funds are ultra-safe because they’re issued by governments with top AAA bond ratings. In the mutual fund world, T-bill funds have been around for decades.

High interest rates have led to a massive flow of money in safe haven investments of all types, but HISA ETFs stand out because they have attracted about $18.7-billion, according to Horizons. It’s worth noting the Horizons itself offers a pair of HISA ETFs, the Horizons High Interest Savings ETF (CASH-T) and the Horizons Cash Maximizer ETF (HSAV-T), which was closed to new investment after hitting $2-billion in assets.

If you currently hold HISA ETFs, there’s reason to hang onto them for now. These funds base their returns off the Bank of Canada’s overnight rate, which is expected to stay at current levels for most, if not all, of this year and possibly into early 2024. Yields on T-bills change at the whim of financial markets. We’ve seen a big run-up in the past year, but concerns about economic weakness or recession could cause a U-turn.

Alternatives to both the new Horizons T-bill funds and HISA ETFs include cashable guaranteed investment certificates and HISA mutual funds. An advantage of HISA mutual funds is that you can buy and sell at no cost through most online brokers. Some brokers don’t offer their clients HISA ETFs, and those that do may charge commissions of up to $10 to buy and sell.

You can also buy T-bills directly from most brokers, but the minimum purchases may be high and the pricing less than sharp. The more you pay for a T-bill, the lower the yield.

The management fee for CBIL is 0.1 per cent, while UBIL.U is pegged at 0.12 per cent. Expect the management expense ratio, a fuller picture of the fees you pay when you own a fund, to come in around 0.12 to 0.14 per cent. That’s on par with HISA ETFs.

-- Rob Carrick, personal finance columnist

Also see: The latest ETF launches and monthly inflow trends

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