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The Bank of Canada’s next rate-setting date is Dec. 7. If the overnight rate rises as expected, investors holding high interest savings account ETFs will benefit from a higher return on Dec. 8.

With interest rates rising, this is the best year in decades for savers. But there are still frustrations. For instance, the disconnect between what the Bank of Canada does with rates and returns on savings products and guaranteed investment certificates. Want a savings vehicle that moves when the Bank of Canada moves? Try exchange-traded funds that hold their assets in savings deposits at major banks.

“Every time the overnight rate goes up, literally the next day your rate in these HISA ETFs goes up in lockstep,” said Raj Lala, president and CEO at Evolve ETFs. “There’s no lag effect, there’s no waiting three weeks before you get a rate improvement that oftentimes isn’t even equivalent to the actual [Bank of Canada] rate hike.”

Evolve’s High Interest Savings Account Fund (HISA-NE) is part of a small but popular ETF niche that accounted for about 50 per cent of the dollars that have flowed into fixed income ETFs in 2022 so far. Mr. Lala said some investors are using these funds as an alternative or complement to traditional bond ETFs, while others are using them to park cash.

The predictability and transparency of these products stands out these days in comparison to shaky bonds and stocks, and to other savings vehicles. Even at alternative banks, rates on high-rate savings accounts haven’t risen dramatically as the overnight rate.

The savings accounts held by high interest ETFs are a bit different than regular accounts - they’re offered by big banks to investment firms with huge blocks of money to place and have higher rates than retail products.

GIC rates top out at 5 per cent or slightly more for most terms these days, which is excellent by the standard of the past 20 years. But investors have been frustrated by the unpredictability of GIC rates, which are guided by yields in the bond market and the ever-changing needs of the banks that issue them to generate money to lend out for mortgages. There’s little correlation between GIC rates and the Bank of Canada’s overnight rate.

HISA and its peers typically have a gross yield of 4.25 per cent right now. If the Bank of Canada increases its overnight rate by 0.5 of a percentage point on Dec. 7, the gross yield can be expected to rise to 4.75 per cent. Subtract the management expense ratio to get the net yield. HISA’s MER is 0.14 per cent.

Bear in mind that rates on high-interest ETFs track the Bank of Canada both up and down. Assets will flow out of these ETFs when rates fall, but further rate hikes could make them even more popular with investors looking for a predictable way to ride savings rates higher.

A quick roundup of high interest ETFs, aside from HISA:

-CI First Asset High Interest Savings ETF (CSAV-T)

-Horizons Cash Maximizer ETF (HSAV-T)

-Horizons High Interest Savings ETF (CASH-T)

-Ninepoint High Interest Savings Fund ETF (NSAV-NE)

-Purpose High Interest Savings ETF (PSA-T)

-- Rob Carrick, personal finance columnist

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