Add EQ Bank to the slow trickle of financial companies introducing First Home Savings Accounts.
EQ’s new FHSA offers two investing options: a high-rate savings account or guaranteed investment certificates. Today’s high rate environment makes the EQ FHSA worth considering, but mind the potential drawbacks of keeping your home down-payment money in savings or GICs.
The introductory FHSA savings rate at EQ was 3 per cent, which beats EQ’s usual savings rate of 2.5 per cent. A 3-per-cent return in a tax-free FHSA beats the current inflation rate is defensible, given that your money is covered by deposit insurance and that inflation is running at 2.8 per cent. But you can count on the 3-per-cent rate falling as soon as the Bank of Canada cuts rates, possibly some time next year.
EQ’s GIC rates are very competitive – you could get between 5.05 and 5.5 per cent or slightly more as of late July for terms of one through five years. That’s darn good, considering that the risk level is virtually zero if you stay within Canada Deposit Insurance Corp. limit of $100,000 in combined principal and interest. The drawback is that these aren’t cashable GICs. For now, EQ doesn’t offer these.
If you see any possibility whatsoever of buying a house in the next five years, GICs are not the place to invest because of the penalties for early withdrawal. A buying horizon of more than five years is realistic if you’re young – FHSAs can be opened by anyone who is 18 and older. But if you are buying well into the future, there’s a case to be made for seeking the great returns potentially available from a diversified portfolio of stocks and bonds.
For people planning to buy at some point in the next few years, there’s a case to be made for the EQ savings account FHSA. Earning a modest return in exchange for having your money safe and liquid is a fair bargain.
FHSAs were launched in April. Since then, the roster of financial companies offering them has grown to include the independent digital broker Questrade (they were first), RBC, Fidelity and National Bank of Canada. Even with EQ in the mix, the financial landscape is still very much an FHSA desert.
-- Rob Carrick, personal finance columnist
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