Short term cash returns

When saving towards a short term objective, such as a car or house purchase, Canadians often look for higher rates of interest than what is available in a savings or chequing account at a bank or credit union. There are a variety of ways for investors to earn higher rates of interest on money they may need to draw on in the short term. They include Guaranteed Investment Certificates (GICs), Guaranteed Interest Accounts (GIAs) offered by life insurance companies and high-interest savings accounts. Other options include cash ETFs, money market mutual funds, treasury bills and other money market debt instruments.

For short term uses, equities are not a good choice, due to their volatility.

I am more concerned with the return of my money than the return on my money.

— (attributed to Will Rogers, among others)

GICs and GIAs

Main articles: Guaranteed Investment Certificate and Guaranteed Interest Account

A Guaranteed Investment Certificate (GIC) is a term deposit that offers a guaranteed rate of return over a fixed time period, typically 1-5 years, but there are shorter and longer terms available. GICs are most commonly issued by Canadian banks or Trust companies. The equivalent product is called Guaranteed Interest Account (GIA) when issued by an insurance company. Make sure your GICs are covered by the Canada Deposit Insurance Corporation (CDIC) or another acceptable form of deposit insurance.

If you are uncertain when you will need the money, a cashable GIC or cashable GIA might be preferable. The marketplace for these products is very competitive, so it is recommended that you spend some time and effort to ensure that you are getting the best GIC rate.

High-interest savings accounts

Main article: High-interest savings accounts

HISAs are bank accounts offering a rate higher interest than traditional daily savings accounts. In Canada, there are two types of HISA, a savings account offered by financial institutions such as banks (including virtual banks) and credit unions and fund-based savings accounts offered by discount brokerages. Current rates for for the former type are available from Cannex or Canadian high interest savings account: Comparison chart. The latter indicates which accounts are available in Quebec and which institutions are credit unions. It is important to check which type of deposit insurance applies to your HISA.

Cash ETFs

Main article: Cash ETF

Cash exchange-traded funds (Cash ETFs) are similar to HISAs but the units/shares trade on stock exchanges. They are often known as HISA ETFs. Instead of buying a HISA directly from a bank, deposits from many investors are pooled. Cash ETFs are considered slightly more risky than traditional HISAs because (1) there is no CDIC guarantee, even on amounts less than $100k, given the pooling of the funds; (2) the units can trade below their net asset value (NAV).

Money market instruments

Main article: Money market instruments

Money market instruments are very short term debt securities, with maturies of a few days to one year. They are issued by governments, financial institutions and large corporations. The best known, safest and most liquid money market intruments are treasury bills issued by governments. The private sector issues bankers acceptances and commercial paper. Individual investors can buy T-bills with their brokerage accounts, typically with relatively high minimums; current rates can be found at Selected treasury bill yields - Bank of Canada. Otherwise, they can access money markets indirectly through mutual funds or exchange-traded funds.

Money market funds

Main article: Money market funds

Money market funds (MMFs) are mutual funds that can be used like a savings account. Money market funds, as their name indicates, buy money market instruments. These are debt securities such as federal and provincial government treasury bills and other financial instruments with less than a year to maturity.

Money market ETFs (exchange-traded funds) are increasingly available, and very similar to the equivalent mutual funds. Those are purchased and sold on stock exchanges using a discount brokerage account.

You can check offerings and recent yields courtesy of The Fund Library. Under "CIFSC Category" select "Canadian Money Market" and under "Classification" enter either "Mutual" or "Exchange Traded Fund".

Unlike Guaranteed Investment Certificates (GICs) and Guaranteed Interest Accounts (GIAs), money market mutual funds and ETFs are not guaranteed deposits. For many investors, they have been supplanted by HISAs.

Converting US and Canadian dollars

Main article: Norbert's Gambit

Banks charge retail customers substantial fees, typically 1% or more, to exchange Canadian dollars to or from foreign currencies. However, in the common case of Canadian to US dollars (or vice versa), those with a discount brokerage account can convert funds inexpensively via Norbert's Gambit.

Registered account or not?

For tax efficiency reasons, a Tax-Free Savings Account is a good choice for placement of short term funds. On the other hand, in a low interest rate environment, some investors preper to use their TFSA space for equities (for long-term investing), and keep their short term cash reserves unregistered.

See also

• Cash and cash equivalents
• Deposit insurance
• Deposit Brokers
• Emergency fund

Further reading

• Financial Wisdom Forum topic: "High interest savings, GICs and MMFs (2023)"
• Financial Wisdom Forum topic: "High interest savings, GICs and MMFs (2022) - rates"