The investment product generating the least buzz amid all the market drama of recent years has to be the high interest savings account mutual fund.
Until returns from HISA mutual funds began to rise last year, these products were a parking spot of last resort for investors with cash in their accounts. Today, rates of 4 per cent and a bit more are widely available.
A product with a lot more recent buzz lately is the HISA exchange-traded fund, offering yields of about 4.85 per cent in mid-February. Part of the attention paid to HISA ETFs is based on the fact that three big brokers – BMO InvestorLine, RBC Direct Investing and TD Direct Investing – do not allow their clients to buy them. The alternative for clients at these brokers is to use in-house HISA mutual funds.
It looks bad if a broker blocks clients from using a product like HISA ETFs to safely and productively park cash in uncertain times. But if we’re honest, HISA mutual funds are not a bad substitute.
First off, they’re ultra low risk because client money is typically invested in bank deposits that are insured by Canada Deposit Insurance Corp. Money held in HISA ETFs is not CDIC-protected, although the actual risk level is low because deposits are held at big banks.
Second, HISA mutual funds can be bought and sold at no cost, unlike HISA ETFs. Many brokers charge as much as $9.99 to trade stocks and ETFs, and a couple of brokers let you buy ETFs at no cost while charging the usual commission for when you sell. Brokerage commissions will bite into your after-fees return from HISA ETFs and, if you trade frequently, you may find HISA mutual funds give you a better net result.
To get a sense of what’s available in HISA mutual funds, check out a recent post on the Mr. Thrifty blog that provides yields for products issued by 13 different companies. Recently, the yield range was 3.7 per cent to 4.35 per cent for small to medium balances, with both RBC and TD at 4.05 per cent.
Yields on both HISA mutual funds and ETFs take the cue from the Bank of Canada’s overnight rate, which was increased last month and is expected to hold tight for a while. If you have cash earning nothing in your account, give these options a thought.
Rob Carrick