A new way to put money in an investment account while making a decent return
Holding money in your investment account is one way to reduce the stress of a crash in the stock market, but it’s not a carefree strategy.
You need to find at least a semi-decent return on your money, or your money is all but dead. T-bills are an option, but the returns aren’t great for small investors. Money market funds have low returns these days, and investment savings accounts (savings accounts that you buy and sell like a mutual fund) aren’t much better.
This brings us to the high interest savings ETFs, which seem to be growing.
The most recent offer, CI First Asset High Interest Savings ETF (CSAV), has attracted $ 260 million since its debut in mid-June. The High Interest Savings ETFs (PSA) has raised just over $ 2 billion since its IPO in October 2013.
The concept of the high interest exchange traded fund is as follows: to offer a competitive savings rate by investing clients’ money in a portfolio of savings accounts from large financial institutions. CSAV offers a net return after fees of approximately 2.1%, similar to PSA. Investment savings accounts fall in a 1.5 percent range, so there is definitely a yield advantage to the ETF option.
There are two complications with high interest savings ETFs, the first being that, as described here, some brokers do not allow clients to buy and sell liquid type investment products other than their own version. internal. According to the broker, if you tried to buy PSA, for example, your trade would be rejected.
The second problem with high interest ETFs is that most brokers will charge you up to $ 10 per buy and sell transaction. These costs will weigh heavily on your interest earnings if you have a small stake or trade frequently.
Questrade and Virtual Brokers have no buy commission on ETFs, which removes half the cost of using high interest ETFs. National Bank Direct Investing waives ETF commissions entirely if you trade a minimum of 100 stocks. A simple commission-saving alternative for clients of all brokers is the mutual fund version of CSAV, the CI High Interest Savings Fund.
The estimated management expense ratio for the fund is 0.3 percent, which would reduce the net return to around 2 percent (the estimated MER for CSAV is around 0.2 percent). Losing some return in exchange for no buy and sell commission makes sense for investors who hold small amounts of money and trade frequently.