The pandemic has turned a 2-per-cent return from an online savings account into a financial coup.
Memo to everyone who seeks a better return on cash: It’s not out there. In fact, 2 per cent is so good it probably won’t last long. Grab it up while you can.
Cash is one of the most popular topics in reader questions these days. “What is the best cash-equivalent to put cash into right now?” someone asked recently. “The best l can find is high interest savings accounts … offering 2 per cent.”
Pre-pandemic, you’d be right in dismissing 2 per cent as barely enough to keep up with inflation. The Bank of Canada inflation calculator shows the average inflation rate over the past five years was 1.5 per cent. In April, with the pandemic weighing heavily on the economy, the cost of living was 0.2 per cent lower than it was a year earlier. Yes – prices fell.
The official rate of inflation may not be the last word on the price increases you’re experiencing right now. It tracks a broad basket of goods and services, many of which you’re not buying because of physical distancing. Meanwhile, food inflation hit 3.4 per cent in April. You probably suspected as much, given how groceries dominate our household spending now.
Even if actual inflation at the household level is higher than the official rate, you’re still doing well with 2 per cent. The reason is that this return is available to you risk-free, if you stay within the $100,000 limit of combined principal and interest for bank accounts covered by Canada Deposit Insurance Corp., or the higher limits offered by some provincial credit union deposit insurance plans.
Accept it – there is no better cash option for the everyday person than a high interest savings account paying 2 per cent. You get inflation-beating returns with no risk and full liquidity in that you can get your money any time. Stop looking for better.
Note for investors who want to keep cash close at hand in their investment account: Check out this column comparing safe parking spots like money market funds, savings account mutual funds and exchange-traded funds.
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