Where can you invest money for a few months, or even a few years? The stock market is too volatile. Precious metals are too. And current bank accounts offer almost no return. But there are options. Here are six.
High-interest savings account
It’s one of the safest options, and the money remains accessible at all times. Some institutions have attractive promotions for high-interest savings accounts. For example, until June 6, you can take advantage of an annual interest rate of 4.60% for the first three months when opening your first High Interest Savings account at RBC. After this period, the account reverts to the regular interest rate, which is 0.55% per year at the time of writing. CIBC offers a similar promotion. At Wealthsimple, the chequing account offers an interest rate that varies depending on the assets held on the brokerage platform: 1.25% for less than $100,000 in assets, 1.75% for more than $100,000 in assets, and 2.25% for $500,000 in assets and above.
Money Market Funds
Money market funds are investment vehicles designed to offer high liquidity and are considered very low-risk. A popular option is the BMO Money Market Fund (ZMMK). This fund offers an annualized return of 2.32%. Management fees are low, at 0.13%. Another choice is the iShares Premium Money Market ETF (CMR), with an annualized return of 2.25% and management fees of 0.13%.
Guaranteed Investment Certificate (GIC)
A Guaranteed Investment Certificate (GIC) is a safe investment that earns interest on the amount invested over a specified period. However, the penalty for redeeming a GIC before maturity is often prohibitive, so it’s essential to ensure you don’t need the money sooner. And if interest rates were to rise, you’re locked into the initial rate until maturity. According to WOWA.ca, the most generous 1-year GIC is offered by EQ Bank at 3.20% interest. The same bank is also the most generous for 2-year GICs, with an annual rate of 3.50%. Five-year GICs are available at 3.80% annual interest, also from EQ Bank.
High interest savings account fund
These are highly liquid funds that invest in high-interest savings accounts at major Canadian institutions. One of the most popular funds of this type is the Global X High Interest Savings ETF (CASH), with a current annualized return of 1.70% and a management fee of 0.11%. The Global X Corporate Cash Maximizer ETF (HSAV) maximizes tax optimization in non-registered accounts by avoiding taxable distributions. These are instead realized as capital gains. While this is a safe product, this mechanism adds a level of risk. Its current annualized return is 1.92%, and the fee is 0.20%.
Treasury bond funds, 0 to 3 months
Investing in Canadian government Treasury bills with maturities of 0 to 3 months is a simple and inexpensive way to sell your investment whenever you want. One fund that allows you to do this is the Global X Treasury Bills 0-3 Month ETF (CBIL). It currently offers an annualized return of 1.80%, paid monthly. The fund’s management fee is 0.11%.
Short-term bond fund
Finally, short-term government bond funds (1 to 5 years) are generally considered very safe. They exhibit higher volatility than Treasury bills: over a short horizon (less than 2 years), these funds can experience capital losses if interest rates rise sharply. Consequently, these funds compensate investors for the risk with generally higher expected returns. Examples of short-term bond funds include the CI 1-5 Year Step-Down Government Bond Index Fund (BXF) and the Vanguard Canadian Short-Term Bond Index Fund (VSB). These funds have management fees of 0.22% and 0.12%, respectively, and have generated annualized returns of approximately 3% over the past year.
