High-interest savings account

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High-interest savings accounts (HISA) are bank accounts offering a rate higher 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 investment savings accounts offered by discount brokerages. HISAs can be used for a cash allocation in a portfolio, or for cash reserves such as an emergency fund.

Conventional high-interest savings accounts

History

Conventional HISAs[1] are bank accounts offering a rate higher than traditional daily savings accounts. These high-interest accounts are generally considered to have been introduced in Canada by ING Canada, now Tangerine, in 1997, which was one of the first "virtual banks" (with no branches), and offered significantly greater interest than the savings accounts then offered by major banks. Several other providers entered the market later.

Popular choices

Regular rates

The following table lists examples of online banks popular on the Financial Wisdom Forum for their HISAs with regular 'high' rates:

Institution Owned by CDIC coverage and membership
Alterna Bank Alterna Savings, an Ontario credit union Yes
Canadian Tire Bank Canadian Tire Corp (TSXCTC.A) Yes
EQ Bank Equitable Group Inc (TSXEQB) Yes
Manulife Bank Manulife (TSXMFC) Yes
LBC Digital Laurentian Bank (TSXLB) Yes, part of Laurentian Bank[2]
Motive Financial, previously Canadian Direct Financial Canadian Western Bank (TSXCWB) Yes, part of Canadian Western Bank[3]
Oaken Financial Home Capital Group (TSXHCG) Yes, two separate entities: Home Bank and Home Trust[4]
Peoples Trust Privately owned Yes

These institutions also typically offer Tax-Free Savings Accounts (TFSAs) and often Guaranteed Investment Certificates (GICs). While these are all CDIC insured institutions, there are also online high-interest savings accounts offered by divisions of Manitoba credit unions, covered by provincial deposit insurance.

Another sometimes mentioned option for Quebec residents is "Épargne Placements Québec", an administrative unit of the provincial finance ministry. Their HISA-like "flexi-plus savings" product can be competitive with the online banks.

Promos

The following institutions are also often mentioned on the forum. They typically have lower regular HISA rates but often run promotions:

Institution Owned by CDIC coverage and membership
Simplii Financial, previously PC Financial CIBC (TSXCM) Yes, part of CIBC[5]
Tangerine Scotiabank (TSXBNS) Yes

If you want to deal with these institutions offering promos, you might need another HISA from a bank offering better regular rates, to use while you wait for the next promo.

The big banks strike back

Traditional institutions now offer similar plans, although they often have minimum balance requirements or transaction fees designed to prevent them from being a direct replacement for a general savings account. The following list contains links to savings account options, including HISAs, at the big-6 Canadian banks:

The account sponsor should be contacted for the details on establishing the account, transferring funds, account minimum, deposit insurance and other requirements.

Current rates

Current rates for many HISA accounts can be found at Cannex or Canadian high interest savings account: Comparison chart. The latter indicates which accounts are available in Quebec and which institutions are credit unions.

Limitations

Although these accounts may be suitable for normal savings account use, some of them are not eligible for use in a Registered Retirement Savings Plan (RRSP), nor are they convenient for holding day-to-day funds at brokerage accounts, and the Investment Savings Accounts mentioned below are an alternative for those purposes.

Fund-based investment savings accounts

Fund-based investment savings accounts (ISA) are alternatives to money-market fund (MMF), offered by many deposit-taking institutions.[6][7] They trade as if they were mutual funds - that is, they are bought or sold as fund units, usually of $1 or $10 value - but actually represent a CDIC-insured savings account. Settlement date is T+1; that is, the business day after the trade.

These accounts can be used to park cash temporarily in brokerage accounts, including registered accounts, and are also suitable as a place to deposit emergency funds. However, some brokers may not offer all ISAs, or impose additional fees or conditions if the fund is not one of the brokers' own fund family. This may have the effect of restricting the investor's choice to a small group or a single fund. Nonetheless, for small investors they are often more convenient than Guaranteed Investment Certificates or Treasury bills.

A list of some of the applicable funds is given below; note that the fund identification codes in the first column are for "class A" funds which are typical. Some brokers are now offering "class F" funds which have better yields because they don't have embedded commissions; see the comments column.

Prospective investors should confirm fund availability, minimum purchase, and any fees (including penalty fees if the fund is sold within 90 days, which apply at some brokerages) with their brokerage before purchase. Some of this information may be available if the fund identification code (e.g., "RBF2010") is entered into the mutual fund selection box.

Several issuers offer similar funds from different corporate entities (e.g. XYZ Bank versus XYZ Trust), which likely have separate CDIC coverage (check the member list to confirm).[8] However, accounts from the same corporate entity would be combined for deposit insurance purposes[9].

CAD
Fund Symbol
USD
Fund Symbol
Fund Sponsor Comments
ATL5000
ATL5002
ATL5004
ATL5500 CIBC and affiliates including Renaissance Try ATL5001 (F class)
BMT104
BMT109
BMT114
BMT124
BMT129
BMT134
Bank of Montreal and affiliates -
BTB100 B2B Bank Try BTB101 (F class)
DYN3054
DYN3064
DYN3074
DYN5000
DYN6000
DYN5001
DYN6001
Scotia Bank and affiliates No-fee in Scotia Itrade accounts, where they represent the only choices; try DYN6004, DYN3055, DYN3065, and DYN3075 there (F class)
EQB1000
ETR1000
EQB1100
Equitable Bank / Trust Try EQB1001 (F class)
HOM100
HOB100
Home Trust / Bank Try HOB101 and HOM101 (F class)
IBN100 IBN200 ICICI Bank Not available for registered accounts or TFSAs
MIP510
MIP710
MIP511 Manulife Bank / Trust Try MIP610 and MIP810 (F class)
NBC100
NBC6100
NBC8100
NBC101 NBI Altamira (National Bank and affiliates) Try NBC200, NBC6200, NBC8200 (F class)
RBF2010
RBF2020
RBF2030
RBF2040
RBF2014 Royal Bank and affiliates No-fee in RBC Direct Investing accounts, where they represent the only choices; try RBF2011, RBF2021, RBF2031, RBF2041 (F class)
TDB8150
TDB8155
TDB8159
TDB8152 TD Bank and affiliates No-fee in TD Direct Investing accounts, where they represent the only choices; try TDB8151, TDB8156, TDB8158, TDB8160 (F class)

Mr Thrifty maintains a similar list with current interest rates.

As securities priced under $3 are not marginable, HISA funds with a $1 unit value cannot be used as collateral for margin.[citation needed] On the other hand, ISA funds with a $10 unit price generally have a loan value of 95%, consistent with money market funds.[citation needed]

See also

References

  1. ^ Red Flag Deals, High Interest Savings Accounts, viewed Dec. 26, 2011.
  2. ^ CDIC Deposit-Insurance, viewed October 19, 2021.
  3. ^ Motive Financial - FAQs, viewed January 29, 2018.
  4. ^ CDIC – Oaken Financial, viewed July 2, 2020.
  5. ^ CIBC, CDIC Deposit Insurance Information, viewed December 20, 2017.
  6. ^ Canadian Capitalist, High-Interest Savings Accounts at Canadian Brokers, viewed May 14, 2022.
  7. ^ Canadian Couch Potato, Parking Cash in Your Portfolio, October 12, 2010 (updated October 2020), viewed May 14, 2022.
  8. ^ Dan Bortolotti, A better place to park your clients’ cash, Advisor's Edge, April 30, 2013, viewed May 15, 2022.
  9. ^ CDIC communications post on Financial Wisdom Forum, viewed July 3, 2013.

Further reading

External links