Open Hi Interest Savings Account? Be Careful!
High interest savings account (HISA) can be used alternatively to GICs. These HISAs typically pay much higher interest rate than money market funds and are ideal for the cash balance in your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) and investment accounts. Just like online HISAs, Canadian dollar discount broker HISAs are eligible for Canada Deposit Insurance Corporation (CDIC) insurance.
First a note of caution: first check with your investment broker whether any fees are charged for buying or selling HISAs and for early redemptions. For example: Scotia iTrade charges an early redemption fee of 1 percent (minimum of $38.88) on all mutual funds other than Scotia and Dynamic Funds held for less than 90 days. A Scotia iTrade client parking $10,000 for 30 days in a TD HISA will earn $10 in interest but pay an early redemption fee of $100. If the client had instead parked her cash in the Bank of Nova Scotia HISA, there would have been no early redemption penalty.
The savings accounts offered through discount brokers have one huge advantage over high interest savings accounts offered by online banks such as ING Direct Tangerine. The cash parked in HISAs are counted towards the cash balance available in an account. Therefore, these funds are readily available for your trades and your broker may even automatically sell all or some of your HISA to fund your trade. In contrast, online banks are not practical for registered accounts and it may take 3-4 business days to transfer money from (or to) an online bank to (or from) taxable brokerage accounts. These savings accounts are also a much better alternative to traditional money market accounts because they pay a much higher interest rate. For example, as of this writing, the TD Canadian Money Market Fund sports an yield of 0.37 percent which is much less than the 1.25 percent paid by discount broker HISAs.
Tips for getting the most out of HISAs
Many discount brokers also carry US$ high interest savings accounts. Note that US dollar HISAs are not eligible for CDIC insurance.
Manulife Bank US$ Investment Savings Account (MIP511): 0.20%
ICICI Bank US$ HIISA (IBN200): 0.25%
Dundee US$ Investment Savings Account (DYN400): 0.20%
Bank of Nova Scotia US$ ISA (DYN1350): 0.20%
RBC US$ Investment Savings Account (RBF2014): 0.20%
BMO US$ HISA (AAT780): 0.20%
TD US$ Investment Savings Account (TDB8152): 0.20%
Altamira US$ High-Interest CashPerformer (NBC101): 0.20%
Availability at discount brokersThe following information is presented based on reader feedback and Canadian Money Forum posts. Do your due diligence and check with your investment broker first.
Author - Atul Prakash
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