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Looking for an investment that combines the safety of a savings account with the potential for higher returns and liquidity?
Well, you may want to consider a high-interest savings account ETF (HISA ETF). These unique investment vehicles present a compelling alternative to traditional savings accounts and GICs.
It covers their benefits, risks, top options in Canada, and provides guidance on choosing the right one for your portfolio.
Are you ready to grow your monthly income while preserving your capital? Let's dive into the details.
Short Summary
- HISA ETFs offer diversification, liquidity and higher returns than traditional savings accounts.
- Compare fees, NAVs and yields to find the best HISA ETF for your investment goals.
- Consider tax implications when making an informed decision about which fund is right for you.
Understanding HISA ETFs
HISA ETFs are exchange-traded funds that invest in high-interest deposit accounts, providing investors with a liquid and diversified investment option. They gained popularity in recent years, with Purpose Investments’ high-interest savings ETF managing $290.2 million. But why are HISA ETFs gaining traction now? One reason is that record-low interest rates in the past made them less attractive.
Unlike owning stocks of individual companies, which gives you exposure to just those specific companies, owning a HISA ETF provides broad, diversified exposure to a sector. This means that as a portfolio manager, you can reap the benefits of investing in high-interest deposit accounts at various financial institutions, such as National Bank and Scotia Bank.
It’s a win-win situation for investors looking to diversify their investments while still having access to liquid funds.
Maximizing Monthly Income with HISA ETFs
HISA ETFs are focused on providing maximum monthly income with a minimal reduction in capital value. They achieve this by investing in high-interest deposit accounts with various financial institutions. F
or example, the Horizons High-Interest Savings ETF pays out interest payments every month, although past performance doesn’t necessarily reflect future values. With a yield of ~5%, the income taxes payable on the interest earned may affect your overall returns.
So, how do HISA ETFs provide such high yields? Fund managers have access to bank institutional savings accounts, which offer higher rates than what retail investors can get. By investing in these accounts, they pass the higher interest rates back to investors through their savings ETFs.
This means you can enjoy the benefits of higher interest rates without the hassle of managing multiple high-interest savings accounts yourself.
Comparing HISA ETF Options
When it comes to HISA ETFs, there are several factors to consider, including net asset value, management fees, and yields.
In the following sections, we’ll dive deeper into these aspects to help you make an informed decision about which HISA ETF is the best fit for your investment objectives.
Net Asset Value
The net asset value (NAV) of a HISA ETF is the total value of the fund’s assets minus any liabilities, divided by the number of shares outstanding. Understanding the NAV is crucial when evaluating HISA ETFs, as it directly impacts the price of the ETF.
For instance, subscriptions to Horizons High-Interest Savings ETF are still going strong, which means the fund trades at its net asset value all the time. Knowing the NAV can help you determine the true value of the fund and make better investment decisions.
Management Fees
Management fees are the costs associated with having your assets professionally managed. These fees vary among HISA ETFs, usually ranging between 0.25% and 0.50%. For example, the Horizons High-Interest Savings ETF has a low management expense ratio of 0.11%, making it a more cost-effective option compared to HSAV.
It’s essential to compare management fees among different HISA ETFs to ensure you’re getting the best value for your investment.
Yields and Performance
Yields and performance are crucial factors when evaluating HISA ETFs. The average return calculated over the past seven days (net of fees and expenses payable by the fund), ending on 2024-07-28, has been used to show the annualized historical yield. This average return is different from the actual one-year return. It’s important to keep in mind that income taxes payable on the interest earned may affect your overall returns.
By comparing the yields and performance of various HISA ETFs, you can make an informed decision on which fund best aligns with your investment goals.
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Advantages of Investing in HISA ETFs
One of the main benefits of investing in HISA ETFs is liquidity. Unlike traditional savings accounts and GICs, HISA ETFs offer quick and convenient access to your funds.
Additionally, HISA ETFs provide diversification, allowing you to invest in a range of different investments. This means that you can spread your risk across multiple high-interest deposit accounts, increasing your chances of achieving higher returns.
Another advantage of HISA ETFs is the potential for higher interest rates compared to traditional savings accounts. By investing in a variety of high-interest deposit accounts, HISA ETFs can offer better returns than regular savings accounts, increasing your overall monthly income.
It’s no wonder that more and more investors are turning to HISA ETFs as a means of diversifying their portfolios and maximizing their returns.
Potential Risks and Drawbacks
Although HISA ETFs offer numerous benefits, it’s essential to be aware of the potential risks and drawbacks associated with them. One significant risk to consider is the lack of Canada Deposit Insurance Corporation (CDIC) coverage, which safeguards deposits up to $100,000 at CDIC-covered institutions.
This means that if a financial institution holding your HISA ETF’s assets goes bankrupt, you may not be fully protected.
Another drawback to consider is the trading fees and management fees associated with HISA ETFs. These fees can eat into your overall returns, making it crucial to compare different HISA ETFs and choose one with competitive fees.
Additionally, HISA ETFs are subject to market fluctuations; while they generally provide more stability than other investments like stocks, their value can still fluctuate, affecting your returns.
Best High-Interest Savings Account ETFs In Canada
Now that we’ve covered the basics of HISA ETFs, let’s take a closer look at some of the top high-interest savings account ETFs in Canada. Each of these funds has its unique features and performance, making it essential to compare them based on your specific investment objectives.
In the following sections, we will provide a brief overview of the CI High-Interest Savings ETF, Horizons High-Interest Savings ETF, Evolve High-Interest Savings Account ETF, Purpose High-Interest Savings ETF, Ninepoint High-Interest Savings ETF, and Horizons Cash Maximizer ETF.
CI High-Interest Savings ETF
The CI High-Interest Savings ETF is managed by CI Financial and invests in a diverse range of savings deposits at different financial institutions. With a net yield of around 4.75% and a management fee of 0.16%, this ETF is an attractive option for those seeking higher returns from their savings.
It offers a safe and secure way to invest, with the potential to earn higher returns than investing primarily in traditional assets.
Horizons High-Interest Savings ETF
Also known as CASH, the Horizons High-Interest Savings ETF is an ETF offered by Horizons ETFs that strives to maximize monthly income for investors while preserving capital and liquidity. With a yield of 4.19% and real-time price updates, this fund is an excellent choice for those looking to get the most out of their savings.
The Horizons High-Interest Savings ETF also has the advantage of not paying out a distribution, which would be taxed as interest income, instead reinvesting the interest to increase its net asset value.
Evolve High-Interest Savings Account ETF
The Evolve High-Interest Savings Account ETF is an actively managed fund that aims to maximize monthly income while preserving capital and liquidity. By holding cash deposits with major banks, this ETF offers higher returns than traditional savings accounts and GICs.
However, it’s essential to be aware of the risks of market volatility and the possibility of underperforming other investment options.
Purpose High-Interest Savings ETF
With $4.4 billion in assets under management and a management fee of 0.17%, the Purpose High-Interest Savings ETF is a popular option for Canadians seeking high-yielding HISAs. Offering more diversity in terms of savings accounts than cash, this ETF boasts a yield of around 4.83%.
The majority of Purpose High-Interest Savings ETF’s assets are held by National Bank and Scotia Bank, providing a secure foundation for your investment.
Ninepoint High-Interest Savings ETF
The Ninepoint High-Interest Savings ETF seeks to maximize yield on cash balances by investing in high-interest savings accounts at Schedule 1 Canadian Banks. By doing so, this ETF offers investors a steady stream of income while preserving capital and liquidity.
Although it may come with the risk of market volatility and the possibility of underperforming other investment options, the Ninepoint High-Interest Savings ETF is a viable choice for those seeking higher returns on their savings.
Horizons Cash Maximizer ETF
The Horizons Cash Maximizer ETF is a high-interest savings account ETF that invests in a portfolio of Canadian savings accounts. With a yield just under 5% and a management fee of around 0.15%, this ETF is an attractive option for those seeking a higher return on their cash balances.
The Horizons Cash Maximizer ETF is also unique in that it doesn’t pay out distributions, reinvesting the interest paid by savings accounts to increase its net asset value instead. This feature can be beneficial for investors in a taxable investment account, as it may result in a more favorable tax treatment.
Fees and Expenses to Consider
When investing in HISA ETFs, it’s essential to be aware of the fees and expenses associated with them. Trading commissions for buying and selling high-interest savings ETFs can amount to around $9.95. Additionally, management fees charged by the company running the ETF can vary, with some funds charging as low as 0.10%.
It’s crucial to compare different HISA ETFs and choose one with competitive fees to ensure you’re getting the best value for your investment. By taking the time to research and understand the fees and expenses associated with HISA ETFs, you can make a more informed decision and potentially increase your overall returns.
HISA ETFs vs. Traditional Savings Accounts and GICs
When comparing HISA ETFs to traditional savings accounts and GICs, there are several key differences to consider. Firstly, HISA ETFs offer more liquidity than GICs. With GICs, you’re typically locked into a fixed term, and early withdrawal fees apply, whereas HISA ETFs provide easier access to your funds. Secondly, HISA ETFs usually offer higher yields than traditional savings accounts, but may have lower yields than GICs due to the fees associated with managing the ETF.
Insurance coverage is another crucial difference between HISA ETFs and traditional savings accounts and GICs. Unlike savings accounts and GICs, which are insured up to $100,000 by the Canada Deposit Insurance Corporation (CDIC), HISA ETFs do not have this coverage.
It’s essential to weigh the benefits and risks of HISA ETFs against traditional savings accounts and GICs to determine which investment option is best suited for your needs.
Tax Implications of HISA ETFs
Understanding the tax implications of HISA ETFs is essential when considering this type of investment. The interest earned from HISA ETFs is categorized as trust income and is taxed in full. This means there is no favorable tax treatment, like with capital gains and dividends.
When evaluating HISA ETFs, it’s crucial to consider the tax implications alongside other factors such as fees, performance, and investment objectives. By taking a comprehensive approach to evaluating HISA ETFs, you can make an informed decision on which fund is the best fit for your portfolio and financial goals.
How to Choose the Right HISA ETF for Your Portfolio
Selecting the right HISA ETF for your portfolio involves considering several factors, such as fees, performance, and investment objectives. By examining the net asset value, management fees, and other fees and expenses associated with each HISA ETF, you can determine which fund offers the best value for your investment.
Furthermore, comparing the yields and performance of different HISA ETFs can help you identify which fund best aligns with your investment goals.
Ultimately, the right HISA ETF for your portfolio will depend on your specific financial objectives and risk tolerance. By carefully evaluating each HISA ETF and considering your individual needs, you can make the best choice for your financial future.
Looking for expert advice around saving for retirement and protecting your family's financial future? Reach out to a Dundas Life licensed advisor today. We're happy to guide you through your investing journey.
Summary
In conclusion, HISA ETFs offer a compelling alternative to traditional savings accounts and GICs, providing investors with liquidity, diversification, and potentially higher interest rates.
Despite the potential risks and drawbacks associated with HISA ETFs, such as the lack of CDIC insurance and trading fees, they can be an attractive option for investors seeking to maximize their monthly income while preserving capital.
By carefully evaluating the fees, performance, and investment objectives of different HISA ETFs, you can choose the right fund for your portfolio and enjoy the benefits of a diversified and liquid investment. Don’t miss out on the opportunity to potentially boost your returns and achieve your financial goals with HISA ETFs.
Frequently Asked Questions
Are high interest savings ETFs safe?
Although U.S. banking events have shown that there is a risk of bank account runs, it’s difficult to see the same situation happening with high interest savings ETFs in Canada. These products are incredibly stable and an ideal parking place for cash during uncertain times, so they are generally safe investments.
Is GIC better than HISA?
When saving for the short-term, a HISA is a great option. However, when looking for more long-term savings with guaranteed returns, GICs are the way to go. You can get a higher interest rate of up to 0.46% more than a HISA, and both are CDIC covered up to $100,000.
How do high interest savings account ETFs work?
High-interest savings account ETFs work by investing in high-interest savings accounts with major banks that pay interest to the ETF.
This interest income is then distributed among its shareholders.
What are the potential risks and drawbacks of HISA ETFs?
Investing in HISA ETFs comes with risks, such as lack of CDIC insurance, trading fees, and the possibility of market fluctuations.
What are the tax implications of HISA ETFs?
HISA ETFs don’t enjoy the same tax benefits as capital gains and dividends, with all the interest they earn subject to full taxation.
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