For the longest time, record-low interest rates made things like high-interest savings accounts and high-interest savings ETFs on the Toronto Stock Exchange virtually useless.
Nobody wanted to park their hard-earned cash into a savings account or a Canadian ETF yielding 0.5%, especially when the stock market was soaring.
However, the tables have indeed turned. Now, we're presented with some of the best yields we've witnessed in decades. Investors finally have a place to park their hard-earned deposits other than the stock market.
In this article, we will go over some of the best high-interest savings ETFs you can buy today and earn monthly distributions or capital gains on your cash with relatively little risk.
A warning about these HISA ETFs
These HISA ETFs are generally available at most brokerages. However, many major banks, such as RBC Direct Investing, BMO Investorline, and TD Direct Investing, will not allow you to buy them at their brokerages.
Instead, you'll have to buy their high-interest savings ETFs or mutual funds. From what I have witnessed, you can purchase these funds at banks like CIBC, National Bank, Canadian Western Bank, and Scotiabank, along with most discount brokerages.
The primary reason for this is that, for the most part, the money inside of these high-interest deposit accounts that these funds use is at these institutions.
The risks of these high-interest savings ETFs
High-interest savings ETFs here in Canada have virtually zero risk. However, they do have some, and I must highlight them.
Here in Canada, your deposits are typically protected by the Canada Deposit Insurance Corporation. I won't go too in-depth on the CDIC in this article. But to sum it up quickly, any deposits under $100,000 at a CDIC-covered institution will be guaranteed if something happens to the bank.
An example would be you take $90,000 and buy a GIC at Toronto Dominion Bank. If TD Bank were to go insolvent, your $90,000 would be safe.
This is not the case with these HISA ETFs. I believe the chance of insolvency at the institutions holding these HISA ETF deposits is next to zero. But, it's not impossible.
Any investor needs to consider this before investing in these ETFs. These are relatively secure but not as safe as Canadian Government bonds, treasury bills, GICs, or other high-quality forms of fixed income.
How do these HISA ETFs provide such high yields?
Fund managers like Horizons, Purpose, CI Financial and Evolve generally have access to bank institutional savings accounts. This means that typically because of their extensive deposits, banks can give them higher rates than retail investors.
These fund managers have then turned around and distributed those higher interest rates back to investors in their savings ETFs.
As mentioned above, the controversial investing strategy has caused these funds to be banned from buying at particular brokerages like RBC, TD, and BMO.
But for now, investors can soak up some outstanding interest rates at rock-bottom fees.
Are high-interest savings ETFs worth the fees?
In short, they are. Fees on these ETFs range from 0.1% to 0.18%. However, this is a small price to access exceptionally high-interest rates, virtually 100% liquidity, and little to no risk.
In the list below, I'll speak individually on some of the management fees of each fund.
What is the difference between a HISA ETF and a GIC?
There will be two key differences between a HISA ETF and a GIC. For one, liquidity. GICs are not liquid at all. Typically, your money is locked in for a set amount of time. HISA ETFs can be bought and sold anytime the markets are open. Because the underlying asset of the ETF is cash, they are also entirely liquid. And secondly, the CDIC insurance.
You are not insured via the CDIC if you buy a HISA ETF, whereas, with a GIC purchased from an institution that CDIC covers, it is insured up to $100,000.
What are the best high-interest savings account ETFs in Canada?
- Horizons Cash Maximizer ETF (TSE:HSAV)
- Horizons High-Interest Savings ETF (TSE:CASH)
- Purpose High-Interest Savings ETF (TSE:PSA)
- CI High-Interest Savings ETF (TSE:CSAV)
- Horizons USD Cash Maximizer ETF (TSE:HSUV.U)
Horizons Cash Maximizer ETF (TSE:HSAV)
In my opinion, the Cash Maximizer ETF from Horizons is Canadians' best option regarding HISA ETFs. However, there are some things you need to understand before buying this one.
For one, HSAV does not pay a distribution. And if you're buying this in a taxable investment account, this is a huge advantage. Why?
Instead of the fund paying out a distribution taxed as interest income, often the poorest form of investment income tax-wise, it keeps the interest paid by the savings accounts and reinvests it. This adds to the fund's net asset value, increasing the share price.
Investors can then sell these units for a profit, which would trigger a capital gain, one of the most tax-friendly forms of income. Of course, having these ETFs in a tax-sheltered account won't make much of a difference. But in a taxable account, HSAV is the best.
HSAV's yield is just under 5.5%, meaning it should appreciate in price around that much every year. It currently has management fees of about 0.15%.
Another critical note, however, and an absolute must-read. Horizons have suspended subscriptions on new units of HSAV. This means that no new units will be created and those buying units will be doing so off of the secondary market.
Without getting too deep into how an ETF works, in the simplest way possible, the Authorized Participant of an ETF can generally get you the net asset value of the fund in the event of a sale and can issue you new units of a fund at the net asset value of the fund in terms of a buy. This typically keeps the ETF trading near its net asset value.
However, when units are suspended, the AP cannot create new units. As a result, demand drives the price of the ETF via the secondary market. As such, HSAV tends to trade at a premium to its NAV.
Suppose demand were to dry up, which was witnessed during the banking panic in March and April of 2023. In that case, the price of HSAV can go down if it trades at a premium to its NAV. So, you must keep an eye on the premium to NAV HSAV is selling at and see if its worth buying.
Horizons High-Interest Savings ETF (TSE:CASH)
Horizons High-Interest Savings ETF is the opposite of HSAV. Instead of taking interest payments from the deposit accounts it holds its money at and reinvesting it, it pays those interest payments out to investors monthly.
This is why if you see a chart of CASH, it will be a steady upward trend every month until it pays out its distribution. It will then reset to around $50, accumulate interest throughout the month, and return to $50 on its ex-dividend day.
The fund yields much the same as HSAV, just under 5.5%. The difference is it pays it out to you every month. However, it has a lower MER than HSAV, with a management expense ratio of just 0.11%. In fact, CASH is the cheapest HISA ETF on this list.
Unlike HSAV, subscriptions to CASH are still active, meaning the fund trades at its net asset value at all times, give or take maybe a tenth of a percent.
There isn't much more to say about the fund right now. Suppose you'd like the ability to generate monthly income via these ETFs. In that case, CASH is an outstanding option as it does pay monthly.
Purpose High-Interest Savings ETF (TSE:PSA)
In terms of assets under management, Purpose is one of the more considerable funds on this list at $5.4B, and it's been around the longest, starting in 2014.
The fund yields around 5.31% at the time of writing, primarily because of a higher management fee. Compared to HSAV and CASH at 0.15% and 0.11%, respectively, Purpose's MER comes in at 0.15%.
This means you will effectively collect around 80 cents less per $1000 invested with PSA than with CASH. So, why exactly would you choose it? For the most part, it is because it has more diversity when it comes to savings accounts than CASH or HSAV.
Currently, PSA has the bulk of their holdings at two banks, National Bank and Scotia Bank. However, it does also have some deposits available at CIBC and Manulife. Alternatively, CASH has most of its deposits at CIBC and National, with some also located at Canadian Western Bank.
Also, fund size and fund history indeed come into play here. PSA has been around for much longer, has provided a stable distribution for much longer, and is much larger in terms of AUM.
If this stuff matters to you, 80 cents extra per $1000 invested isn't a huge deal.
CI High-Interest Savings ETF (TSE:CSAV)
CI Financial is a large but relatively unknown fund manager here in Canada. They provide a bunch of rock-solid ETFs, and CSAV is no different.
CSAV is a relatively new fund, debuting in 2019. However, it has quickly grown into the largest fund on this list, with assets under management of around $8B. Much like every other fund on this list besides HSAV, it pays its distribution monthly and has ever since its inception.
The fund has the most diverse set of savings deposits out of all the funds on this list. Like most others, around 38% of them are held at National Bank. However, it also has some at Scotiabank, CIBC, and Bank of Montreal.
It isn't easy to understand why CI Financial's ETF grew to be the biggest one on this list over the others, but I have a feeling the diversity of deposits, particularly at more rock-solid institutions, may have come into play.
In terms of net yield, it's around 5.14%, and this is because the fund has, much like Purpose's fund, a higher management fee at 0.16%, meaning you'll pay $1.60 per $1000 invested.
Horizons USD Cash Maximizer ETF (TSE:HSUV.U)
I am adding a fund for those looking to earn some interest on their US Dollars. HSUV is the US Dollar variant of HSAV. Instead of making regular monthly distributions to investors, it aims to accumulate the interest earned in the savings accounts, reinvest it, and grow the fund's total NAV.
Ultimately, investors can sell their shares and earn a much more tax-friendly capital gain than taxable distributions.
The fund is relatively new, debuting in June 2020, and at the time of writing, it has a net yield of over 5.5%, making it the highest-yielding fund on this list.
Because it's a niche ETF, likely requiring more work on the back end in terms of CAD/USD, it also has the largest expense ratio, coming in at 0.2%. However, remember that the net yield is simply the money you'll be paid after all expenses are paid. So, in that respect, it is still the highest-yielding fund on this list.
HSUV is highly concentrated, having deposits in only two Canadian institutions, National Bank at 61% and CIBC at the remaining 39%. If concentration risk is something you fear here, you should consider this.
Overall, Horizons has cornered the high-interest savings account fund market
Horizons have the widest variety and the lowest fees out of any fund manager in Canada regarding HISA ETFs.
There are others that did not make this list, such as the Ninepoint High-Interest Savings Fund and the Evolve High-Interest Savings Account ETF. I don't see any added benefit to including them on this list, as they bring nothing to the table that those here do.
These funds are a great way to take advantage of high rates and finally start to earn interest on your cash positions in volatile market conditions. Alternatively, I used these high-interest savings ETFs to make over $300 a month on my down payment while getting a house built in 2022.
There is risk here, however. But the chance of insolvency when it comes to Canadian banks, especially the major ones, is, in my opinion, next to none. There were a lot of fears in March and April of 2023, but they were short-lived.
Those with different investment objectives must decide whether they like the monthly distributions of something like PSA or CASH or would rather accumulate capital gains with funds like HSAV or HSUV.U.
Brokerage commissions are another thing you'll have to consider. Although brokerage firms such as Wealthsimple Trade have free trades, buying in and out of these funds with your cash positions, if you're paying commission, can quickly eat away at interest earned if you don't have a lot of money in them.
Make sure to figure out your rate of return after all fees are paid and determine if these funds are worth your time.